Bank of Israel lowers growth forecast for next 2 years, citing fears of expanded war

The Bank of Israel lowers its growth outlook for this year and next year citing a “high level” of geopolitical uncertainty and increased probability of an escalation of the ongoing war to multiple fronts.

The central bank says it now expects the economy to grow by 1.5 percent in 2024 and 4.2% in 2025. That is down from its previous growth forecast in April of 2% in 2024 and 5% in 2025.

The bank’s monetary policy committee assumes that “the war will last at a higher intensity until the end of 2024, and will subside at the beginning of 2025.”

“Beyond the security effects, the war is having significant economic consequences,” the central bank says in a statement. “There are several risks of a potential acceleration in inflation: geopolitical developments and their effects on economic activity, a depreciation of the shekel, continued supply constraints on activity in the housing market and the air travel industry, fiscal developments, and global oil prices.”

Alongside the revised growth forecasts, the central bank decides to hold the benchmark interest rate at 4.5%, in line with forecasts by the majority of economists.

In January, the central bank lowered the base lending rate for the first time in almost four years by 25 basis points, from 4.75%, to support households and businesses as the economy was getting battered due to the Hamas war, and as the inflation environment was easing.