Standard & Poor's Forecast for Israel's Economy
Standard & Poor's (S&P) has issued a stark warning regarding Israel's economic outlook, predicting that the country's economy will not see improvement before 2026. The ongoing conflicts in the Gaza Strip and Lebanon are expected to persist into 2025, contributing to a significant budget deficit projected to reach 9% of GDP by the end of this year. This assessment follows S&P's recent downgrade of Israel's credit rating to 'A-' with a negative outlook, reflecting concerns over the economic impact of the military engagements.
The agency's report, which was delayed in publication, indicates that Israel's economy will not grow in 2024, leading to a contraction in GDP per capita. While a modest recovery is anticipated in 2025 with a projected growth of 2.2%, the fiscal deficit is expected to remain elevated, fluctuating between 5% and 6% of GDP until 2027. These figures starkly contrast with estimates from the Israeli Ministry of Finance, which has reported a budget deficit of 11.2 billion shekels ($3 billion) as of October 2023.
Risks and Implications for Israel
S&P has highlighted that the primary risk to Israel's economic stability lies in the potential escalation of conflict, particularly with Lebanon and Iran. The agency cautioned that if the military situation deteriorates further, it could lead to a downgrade of Israel's credit rating within the next 24 months. Additionally, S&P pointed out the growing tensions between Prime Minister Benjamin Netanyahu and key international allies, including the United States and the United Kingdom, due to the humanitarian crisis in Gaza and Lebanon.
The financial strain from military expenditures has already exceeded 106 billion shekels ($28.4 billion) since October 2023, raising concerns about the sustainability of Israel's fiscal policies. As the situation evolves, the economic ramifications of the ongoing conflicts will continue to be closely monitored by financial analysts and international observers.
