Saturday, July 13, 2024

300 economists warn Israel faces looming ‘economic crisis’

Some of Israel’s most senior economists have warned that Tel Aviv faces an impending economic crisis following its war on the Gaza Strip.

“You do not understand the magnitude of the economic crisis that Israel’s economy is facing,” said the signatories in an open letter to the Israeli Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich.

Israel’s current economic plans were no longer viable, the group of 300 economists warned.

“Continuation of the current conduct harms Israel’s economy, undermines citizens’ trust in the public system, and undermines the State of Israel’s ability to recover from the situation it has found itself in,” the economists stated.

They recommended non-essential expenditures in the budget to be immediately cut, and for funds to be diverted to deal with damages related to the war, aid to victims and internally displaced Israelis.

The International Monetary Fund earlier this year had already downgraded the country’s economic outlook because of deep political polarisation in the country.

Recently, JPMorgan has sharply lowered its fourth quarter economic forecast for Israel. According to a research note made public on Friday, Israel gross domestic product (GDP) may shrink 11% from the previous three months amid the escalation of hostilities with the Palestinian armed group Hamas.

Earlier this month, the bank forecast a 1.5% downturn, but the initial projections were deemed “too optimistic”, analysts suggested.

“Gauging the impact of the war on Israel’s economy remains difficult, both due to still-very high uncertainty about the scale and duration of the conflict and the lack of high-frequency data at hand,” JPMorgan stated.

The bank also cut its initial projections for the country’s yearly GDP growth to 2.5% instead of the previous 3.2%. Analysts, however, slightly raised the outlook for 2024, to 2% from the previous 1.9%.

JPMorgan noted that Israel’s previous conflicts, like the 2014 escalation of hostilities with Hamas or the 2006 conflict with the Lebanon-based armed group Hezbollah, “barely affected activity”. However, “the current war has had a much larger impact on domestic security and confidence”, analysts warned.

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