US investment bank JPMorgan Chase has revised its forecast for the Israeli economy downward, citing a slew of disappointing macroeconomic indicators. These include a GDP growth rate of just 1.2% annualized in the second quarter and an inflation rate that climbed to 3.2% in July, the highest level since November.
In a report titled, “Israel: Not a great combo of growth and inflation data,” JPMorgan stated it anticipates the Bank of Israel will prioritize inflation control over economic growth in its upcoming policy decisions. The investment bank forecasts two interest rate cuts by mid-2025: a 0.25% reduction in November and a 0.75% decrease. However, the Bank of Israel’s research department is more cautious, projecting only a single 0.25% rate cut over the next year.
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JPMorgan cut Israel’s GDP growth forecast for 2024 to just 1.4%, down from 1.6% it predicted in its previous forecast and to 4.4% in 2025.
“We think that the Bank of Israel will continue to err on the side of caution near term, especially as the geopolitical environment remains tense, and don’t anticipate [interest rate] cuts at the next couple of meetings,” said JPMorgan analyst Anatoliy Shal.
“The loss of momentum compared to 1Q was evident in high-frequency data, but the extent of it was certainly a surprise,” he added. “Business investment was the main negative news, along with a continued decline in exports.”
The news comes a week after the Fitch credit ratings agency downgraded Israel’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to “A” from “A+.” The agency also said that “The Outlook is Negative” for Israel.
In explaining the decision, Fitch said it downgraded Israel to an “A” rating because of the “impact of the continuation of the war in Gaza, heightened geopolitical risks and military operations on multiple fronts.”
Fitch also explained that Israel’s public finances have been ‘hit” and that it projects the country will see a budget deficit of 7.8% of GDP in 2024 and its debt will remain above to 70% of GDP in the medium term.
The agency also cited the fact that World Bank Governance Indicators are likely to deteriorate, weighing on Israel’s credit profile.
