Israel headed for sharp economic downturn – S&P

The conflict with Hamas will negatively affect GDP in 2023 and 2024, according to the rating agency

Israel’s economy will contract 5% in the fourth quarter of this year amid rising geopolitical and security risks due to the conflict with Palestinian military group Hamas, credit rating agency S&P said in a report this week.

The rating agency cited lower business activity, falling consumer demand, and a “very uncertain” investment environment.

S&P projects an Israeli fiscal deficit of 5.3% of GDP in 2023 and 2024, compared with the agency’s pre-war estimate of 2.3%.

The Israeli government has significantly increased expenses to fund the military and to compensate businesses near the border with Gaza, as well as the families of victims and hostages taken by Hamas. This has led to a record budget deficit, which last month ballooned to $6 billion, a more than sevenfold increase compared to one year ago.

The S&P report comes after the agency downgraded Israel’s credit outlook from ‘stable’ to ‘negative’ last month, just two weeks after the conflict began on October 7. Ratings agencies Moody’s and Fitch have both put Israel on review for a downgrade.

READ MORE: Israel’s war debt soaring

S&P, however, indicated it could restore Israel’s credit outlook to ‘stable’ if the conflict is resolved, as that would mean a reduction in regional security and internal risks.

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