Bank of Israel lowers growth outlook for 2023 and 2024 amid ‘high level’ of uncertainty due to war

The Bank of Israel lowers its growth outlook for this year and next year amid “high level” of uncertainty about the duration and economic fallout of the war with the Hamas terror group.

Assuming that the war will be concentrated mainly on the southern front, the central bank now expects the economy to grow by 2 percent in each of 2023 and 2024. That is down from its previous forecast in October of growth of 2.3% in 2023 and of 2.8% in 2024, when the central bank cut its previous projections of 3% growth for this year and next year.

“The revised forecast was built under the assumption that the war’s direct impact on the economy will continue into 2024 although with declining intensity—as opposed to the assumption in the October forecast that the direct impact will be concentrated in the fourth quarter of 2023 alone,” the central bank says in a statement.

The central bank decides to hold the benchmark interest rate at 4.75 percent, in line with forecasts by the majority of economists. The central bank’s monetary policy decision to keep borrowing costs unchanged for a fourth time since July comes as Israel is 52 days into its war with Hamas.

To bring down rising inflation, the Bank of Israel steadily hiked interest rates from a record low of 0.1% in April 2022 to 4.75% in July this year. The high interest burden already began to take a toll on households and mortgage holders even before the outbreak of the war.