Israel’s economic growth to slow to 2% in 2023 due to war -finance ministry

By Steven Scheer

JERUSALEM (Reuters) -Israel’s economy is expected to grow 2% in 2023, down from a prior estimate of 2.7%, the Finance Ministry said on Thursday citing the effects of Israel’s war with Hamas.

For 2024, the ministry projected growth of 1.6% as its main estimate based on a war that will continue through the year but with the most intense fighting ending in the first quarter and largely contained to the southern border with Gaza.

But a more rapid recovery from the war that would end in early 2024 could lead to growth of 2.2% while a war that continues into 2025 and a slower recovery would mean stagnant growth of just 0.2%.

It noted that prior to the war it was set to raise its 2023 forecast to 3.4%, and the war’s impact would be 1.4 percentage points.

The main factor weighing on growth, the ministry said, is poor consumer sentiment that will likely translate into largely flat private spending, Israel’s main growth driver, while exports look to dip 0.6% this year.

The economy grew 6.5% in 2022.

“The war situation is characterized by particularly high levels of uncertainty, but its impact on the economy goes beyond any security incident experienced by the State of Israel during the last two decades,” said a report from the ministry’s chief economist’s office ahead of discussions to update the state budget for 2023 and 2024.

Israel launched its war in Gaza after gunmen from Hamas burst across the border fence on Oct. 7, killing 1,200 people and seizing about 240 hostages, according to Israeli tallies. Since then, more than 14,000 Gazans have been killed by Israeli bombardment, around 40% of them children, according to health authorities in the Hamas-ruled territory.

A four-day temporary truce accord during which some Israeli hostages in Gaza would be freed was announced on Wednesday morning, but Israel said implementation of the deal would be delayed at least until Friday.

The Bank of Israel last month trimmed Israel’s growth estimate for 2023 to 2.3% from 3.0% and to 2.8% next year from a prior 3.0%.

Policymakers have said they would likely refrain from interest rate cuts during the war, instead focusing on targeted steps such as requiring banks to allow customers impacted by the war to defer loan repayments.