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Israel’s central bank laid out its most detailed assessment yet of the economic implications of the war with Hamas, as it holds off on interest-rate cuts in favor of stabilizing markets.
An updated outlook from the bank’s research department put the conflict’s “gross effect” on Israel at 198 billion shekels ($53 billion), with defense expenditure comprising more than half of the total.
The war’s fiscal price tag was previously estimated at 180 billion shekels in 2023-2024 by Leader Capital Markets, with the Finance Ministry saying it’s costing the economy close to $270 million every day.
The Bank of Israel’s in-house research team also lowered its economic growth projections and now expects gross domestic product to expand 2% this year and next — compared with previous estimates for 2.3% in 2023 and 2.8% in 2024.
The Finance Ministry has the same GDP forecast for this year but sees slightly weaker gains ahead.
Alongside the new forecasts on Monday, the monetary committee left its key rate at 4.75%, in line with all forecasts. The shekel traded stronger against the dollar after the announcement.
Speaking after the decision, Governor Amir Yaron warned “the fiscal ramifications” of the war will endure over the medium term and urged caution from the government as it hammers out a new budget.
“Alongside the need to provide a budgetary response to needs created by the war, in emergency times as well there is considerable importance to maintaining a responsible fiscal framework,” he said. “It is important that the government cut new expenditures of a prolonged nature.”
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