In its latest report on Israel published last night, S&P says that the war in Gaza and Lebanon is expected to continue into 2025, which will delay the country's economic recovery until 2026. The international ratings agency, which downgraded Israel's rating to A- last month with a negative outlook took no new measures on the rating following this report. S&P was meant to issue this report at the end of last week but the publication was postponed and has still not been officially posted on the agency's website.
The fiscal deficit could rise to 9% of GDP by the end of 2024
The report forecasts that Israel will record 0% growth in 2024, which represents a GDP per capita contraction. Only in 2025 will the economy start to recover with a modest 2.2% growth.
According to S&P, the fiscal deficit will reach 9% of GDP at the end of 2024 and remain at the high level of 5%-6% of GDP until 2027. These figures are considerably higher than those predicted by the Ministry of Finance, which also stems from different methods of calculation. The net government debt is expected to be 70% of GDP until 2027, up 12% percentage basis points compared with 2023.
Despite all this, S&P says positively, "Israel's diverse and flexible economy, which is focused on the exports of goods and services in the tech industry, together with a strong balance of payments, remain main strong points." The agency believes that the current account surplus will be an average of 3.3% of GDP between 2024 and 2027.
The main risk that S&P identifies is a potential further escalation in the north and a direct confrontation with Iran, although this is not part of its basic scenario. "We could cut the rating over the next 24 months if the military conflict harms Israel's economic growth, its fiscal situation and balance of payments more than we currently expect," the agency warns.
Alongside the defense risks, the company also identifies deteriorating relations with main allies. "The grave humanitarian situation and the increase in the number of civilians being hurt in Gaza, and increasingly also in Lebanon, have led to a number of public disputes between Prime Minister Benjamin Netanyahu and main allies including the US and UK."
Published by Globes, Israel business news - en.globes.co.il - on November 13, 2024.
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