In its latest report on Israel, J.P. Morgan has cut the country's growth forecast for both 2024 and 2025. The US investment bank sees 0.5% GDP growth in 2024, down from its previous forecast of 1% and 3.3% growth in 2025, down from 3.7% in its previous forecast.
The main reason for the cut in the forecast is "The recent downshift in activity data and new downside risks to global growth." In addition, the report mentions, "Israel's growth data took a turn down in the last couple of weeks with downward revisions now making the third quarter look very soft. The BoI State of the Economy Index, which aggregates information from a few growth growth-relates indicators, was particularly disappointing."
This latest report comes after many organizations have already cut Israel's growth forecast. The Bank of Israel lowered the 2024 growth forecast to 0.5% last month and the Ministry of Finance's most recent forecast sees growth of just 0.4%. S&P sees Israel's economy shrinking this year. However, both the Bank of Israel and Ministry of Finance see a bigger recovery next year.
Not everything is black
Despite J.P. Morgan's gloomy forecast it acknowledges that some of the data could be distorted. The report stresses, "We are inclined to downplay the negative signal from these aggregate indicators, as we suspect they were weighed down disproportionately by a handful of noisy readings, including, for instance, building starts. At the same time, we’ve been encouraged by a pick-up in external trade flows recently, which may point to some easing of supply-side constraints in the economy." These constraints have weighed on the economy and have fueled inflation during the war.
J.P. Morgan also spoke positively about Israel's job market. "Labor utilization metrics improved in the third quarter, while the labor market conditions index tightened without an apparent hit to labor supply last quarter."
Impact of US elections
The survey continued, "In other circumstances, we’d be tempted to assume a somewhat stronger bounce in activity at some point in 2025 once security risks moderate. Yet, with the implications of US elections a looming negative for the global growth outlook, we take a more cautious view and keep our 2025 quarterly profile as is. A carry-over from weaker 2H24 implies lower 2025 growth, which now stands at 3.3% vs. 3.7% previously. Note that, with Israel’s exports dominated by services and direct exposure on China fairly small, we don’t think the first-order impact of potentially higher US tariffs should be significant, but a second-order impact via slower global growth can be meaningful. Should president-elect Trump expedite a resolution of Israel’s geopolitical challenges, as some of his campaign promises hinted, this could imply upside risks to our 2025 growth projections."
Published by Globes, Israel business news - en.globes.co.il - on November 11, 2024.
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