The ongoing conflict in Gaza has significantly impacted Israel's economy, leading to a downward revision of growth forecasts and a notable increase in the budget deficit. According to the Israeli Ministry of Finance, the country's gross domestic product (GDP) is expected to rise by only 1.1% this year, a decrease from the previously anticipated 1.9%. This marks the slowest growth rate since 2009, aside from the economic downturn during the COVID-19 pandemic in 2020. The Central Bureau of Statistics reported that the GDP grew by 0.7% year-on-year in the second quarter, down from an earlier estimate of 1.2%. Additionally, the first-quarter growth was slightly revised to 17.2%.
The conflict's toll on Israel's economy has led to a historic downgrade in the country's credit rating, coupled with rising yields on government bonds, reflecting investor anxiety. Israeli officials estimate the cost of the ongoing war could reach approximately $66 billion by the end of next year, a staggering figure that represents more than 12% of the GDP. As a result, government borrowing has surged past NIS 200 billion (about $53.5 billion) since the start of the year, marking one of the largest borrowing operations in Israel's history. Finance Minister Bezalel Smotrich has expressed concerns over a budget deficit projected at 6.6%.
- The economic situation in Israel has been exacerbated by the protracted nature of the conflict, which began nearly a year ago. The war has not only strained public finances but has also shaken investor confidence, leading to a more cautious outlook for the country's economic recovery. As the government grapples with these challenges, it faces pressure to implement measures that could stabilize the economy while addressing the humanitarian crisis resulting from the conflict.
