The international rating agency Moody's issued a particularly gloomy forecast for Israel on Sunday, after placing it on a negative watch list last week.
Economists at the rating agency sharply lowered Israel's growth forecast for 2024 and expect GDP to contract by 1.4 percent, meaning that the Israeli economy will enter a recession. This is in contrast to the rose forecast presented just last week by the Bank of Israel for 2024, according to which positive growth of 2.8 percent will be recorded.
Bank of Israel Building, Photo: Oren Ben Hakon
To make matters worse, Moody's economists expect the war to push inflation up to 6.8% next year. This forecast is also markedly different from that of the Bank of Israel and from forecasts in the interest rate market. According to the Bank of Israel's forecast, inflation will be 2.5 percent next year, and according to Bank Hapoalim's forecast, inflation will decline to 2.3 percent over the next 12 months (similar to the consensus of forecasters in the interest rate market).
The bottom line is that Moody's describes a scenario of stagnation – high inflation accompanied by a recession in the economy. The risk review stated that "Israel's credit profile reflects very high geopolitical risks deriving from the military conflict with Hamas and the potential for material damage to Israel's economic and fiscal indices, as well as the level of effectiveness of policymaking."
Fitch left Israel's credit rating unchanged, Netanyahu: "Very good news" // Photo: Omer Meron/GPO
At the same time, Moody's adds that "the credit profile is supported by the economy's proven ability to recover from shocks, external strength and institutional strength."
The company's report to investors added: "We expect Israel's defense spending to increase significantly in the coming years, with our revised forecast of a budget deficit of 7.8% of GDP in 2024, which also reflects a substantial decline in tax revenues. The uncertainty around any forecasts at this stage is very high. The U.S. government has asked Congress to approve a financial aid package of over $14 billion to provide some fiscal relief."
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