Finance Ministry trims economic growth forecast amid drop in state revenues

Sharon Wrobel is a tech reporter for The Times of Israel.

Israeli shekels, Jerusalem. (Orel Cohen/ Flash90)
Israeli shekels, Jerusalem. (Orel Cohen/ Flash90)

The Finance Ministry trims its economic growth forecast for this year and next year amid projections for lower state revenues.

After positive growth of 6.5% in 2022 as Israel emerged strongly from the COVID-19 crisis, the ministry now forecasts 2.7% growth in 2023 and 3.1% in 2024 — down from its January estimates of 3% and 3.2%, respectively. The global economy is forecast to grow at 2.8% in 2023, according to the International Monetary Fund.

The Finance Ministry updated its macroeconomic forecasts as the government is pushing ahead to pass the proposed two-year, 2023-2024 state budget before its May 29 deadline.

The Finance Ministry expects Israel to collect NIS 463.6 billion in government revenue (from taxes and other income) in 2023, which is NIS 5.3 billion less than in its previous forecast in January. The ministry projects revenue of NIS 487.2 billion for 2024, which is NIS 10.9 billion below the January forecast.

Among the reasons for the update, the ministry cited a slowdown in tax revenue and a deep drop in investments in the local high-tech sector in the first quarter of this year, which it said is partly due to the global economy and a high interest rate environment and partly due to the market uncertainty surrounding the proposed judicial overhaul.

“The more the legal reform is perceived by the market as harmful to the strength of the independence of state institutions, in particular to the judicial system and in the checks and balances between the authorities, and increases uncertainty, the more it is expected to significantly harm growth and economic activity in the economy, and in particular in foreign investments,” the Finance Ministry’s chief economist Shira Greenberg writes in the macroeconomic update.

The Finance Ministry emphasized that the probability for downward risks to the forecast have made it more urgent for the government to maintain fiscal buffers that will allow dealing with future changes in forecast growth and state revenue.

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