The Bank of Israel said on Monday that the war between Israel and Hamas would suddenly slow the Israeli economy this year and next and increase the country’s budget deficit as the country spends to support the military, civilians and businesses during the conflict. Is increasing.
Many businesses have been forced to halt activity, and hundreds of thousands of Israeli reservists are now on active duty, while many are in shelters. If the war on Israel’s southern front continues, economic growth will slow to an annual rate of 2.3 percent this year and 2.8 percent in 2024, compared to a projected 3 percent growth rate for both years. augustBank A report said Following its first monetary meeting since the conflict began.
“We knew how to overcome difficult times in the past and I have no doubt that it will be the same this time,” Bank of Israel Governor Amir Yaron told a news conference in Jerusalem. Nevertheless, he said, “It is clear that any development of war in the short or long term, as well as in additional areas,” will add uncertainty to the economic outlook.
The conflict has dealt a fresh blow to a resilient economy that until recently was hailed as an entrepreneurial powerhouse. Israel had low debt, current account surplus and high foreign exchange reserves, although growth had begun to slow amid expectations of high interest rates, rising inflation and a recession in the global economy.
In its report, the bank said Israel’s financial markets were functioning, and most of the country’s economic activities were continuing “as usual”.
But the shekel, Israel’s currency, which had been trending downward since the beginning of the year, has fallen even further since the war began, hitting an eight-year low, prompting the central bank to freeze $30 billion in foreign currency. Have been inspired to do. support it. The shekel fell an additional 0.1 percent against the US dollar on Monday.
two credit rating agencies caution Last week it was said that Israel may be in debt downgrade, depending on the severity and length of the conflict. But the central bank said Monday that Israel’s banking system “remains stable and strong.”
The central bank faced a dilemma: lower interest rates to help shore up the wartime economy, or keep them high to support the shekel. On Monday, the bank chose the latter option: It left interest rates unchanged, and said its policy was focused on “stabilizing markets and reducing uncertainty.”
Israel’s debt as a percentage of the economy is expected to grow rapidly, reflecting increased spending on defense which the bank said will provide financial support “to conduct the war in accordance with the goals defined for it”.
The central bank said the economy was hit and people called for a fight, with tax revenues expected to decline. The bank said consumer spending was already low, as was activity in the construction, agriculture and tourism industries.
At the same time, the government has promised to spend more to support people and businesses, including housing for those evacuated from war zones. Banks and credit card companies, under government direction, are providing repayment deferrals and other financial assistance to help families and companies.
The government will also provide grants and state-backed loans to small and medium-sized businesses, and is creating a fund to help businesses cover fixed expenses, including staff salaries.
All of this was expected to help stabilize the Israeli economy, the bank said. Still, “the forecast is with particularly high uncertainty,” it added.