IMF slashes Israel growth forecast

International Monetary Fund  credit: Shutterstock
International Monetary Fund credit: Shutterstock

The IMF now projects GDP growth of just 2.7% in 2025, halving the previous projection, made in April.

Israel’s economic recovery after the war will take longer than many in the country think, according to the projections in the latest World Economic Outlook from the International Monetary Fund (IMF). The IMF sees real growth in Israel in 2024 of just 0.7%, which in per capita terms means a decline.

In the IMF’s view, if the war ends, we shall see an improvement in the coming years, but it will be slow. The growth projection for 2025 is 2.7%, rising gradually to 3.4% in 2029.

The figures represent a steep drop from the previous forecasts in April, when the IMF projected growth of 1.6% for Israel’s economy this year and 5.4% next year. Despite this, the IMF’s projections remain in the mid-range of the various forecasts for the Israeli economy.

S&P, for example, estimates zero growth this year in Israel and 2.2% in 2025. Moody’s, which issued a very severe report on the Israeli economy when it downgraded the country’s credit rating by two notches, sees growth of 0.5% this year and 1.5% next year. The Bank of Israel is closer to the IMF, with a forecast of just 0.5% growth this year but fairly strong recovery next year resulting in 3.8% growth.

The positive news is that the IMF sees inflation in Israel slowly moderating to an annual rate of 3% in 2025, which is just within the Bank of Israel’s 1-3% target range, while the unemployment rate is expected to remain low, reaching 3.1% at the end of this year and 3.5% at the end of 2025.

The IMF hedges its projections, saying, "Projections for Israel are subject to significant risks given the unpredictability of the impact of the conflict in the region. Fiscal projections are based on the assumption that in the short-term higher government spending is used to support the economy and cover military costs, but after 2024 fiscal measures are expected to help contain the fiscal deficit."

The report forecasts a global slowdown in economic growth. The projection for the US is 2.8% growth this year and 2.2% next year. For China, the projection for 2024 is 4.8% growth, while in Europe as a whole growth is expected to be stable, at 1.7%.

Published by Globes, Israel business news - en.globes.co.il - on October 22, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

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