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reduced Moody’s credit rating outlook For economic growth Israeli labor during the current year, with a likely contraction of 1.5% next year, with the absence of 18% of the workforce in Israel during the war.
The Times of Israel quoted a Moody’s report as saying that the cost of the war launched by Israel on… Gaza strip Since the seventh of last October, there has been no less than one billion shekels ($269 million) per day, and it is expected to have a greater impact on the economy compared to previous conflicts, based on preliminary estimates by the Israeli Ministry of Finance.
The severity of any damage to the economy will depend – to a large extent – on the length of the military conflict, but also on the long-term prospects for the internal security situation in Israel, said Moody’s Vice President Katherine Muelbrunner. She added that although uncertainty remains very high, “we believe that the impact on the economy may be more severe than in previous conflicts.”
According to the newspaper, the total cost of the war is estimated at between 150 to 200 billion shekels (40 to 54 billion dollars), equivalent to 10% of the total cost of the war. gross domestic productThis is according to a recent report by the Institute for National Security Studies, cited by Moody’s, which last month placed the Israeli government’s A1 credit ratings under review for a downgrade.
Financial burdens
The financial burden of the current war will be very high, according to Moody’s, and will include spending billions, mainly on:
– Defense and support of the war effort.
– The wages of hundreds of thousands of reserve soldiers.
– Compensating companies affected by the war.
– Reconstruction and rehabilitation of buildings destroyed by resistance missile attacks.
At the same time, fiscal revenues – mainly tax income – are expected to continue to decline as consumption, among other demand factors, declines.
Estimates of the economic impact of the war prompted Moody’s to lower its forecast for growth of the Israeli economy for this year to 2.4% from 3% previously. In a more pessimistic forecast for 2024, the rating agency said it expects a contraction of about 1.5% followed by very moderate growth in 2025.
Last week, the credit rating agency Standard & Poor’s expected the Israeli economy to contract by 5% in the fourth quarter of this year, and to grow by 1.5% overall in 2023 and 0.5% in 2024, followed by faster growth of 5% in 2025. .
Absence of 18% of the workforce
The Israeli economy is facing the displacement of more than 200,000 people from population centers along the southern and northern borders following Operation “Al-Aqsa Flood” Launched by the Palestinian resistance led by Izz al-Din al-Qassam Brigades (The military wing of the movement agitation) on the seventh of last October.
The Israeli army has called up about 350,000 reserve soldiers, disrupting the operations of thousands of companies across the country.
Moody’s warned that the absence of 18% of the country’s workforce – those conscripted into the military, those evacuated from their homes near the border, and parents caring for children, because schools are only partially open – is already putting pressure on manufacturing operations. And the technology sector.
Technology sector
The Israeli economy’s dependence on the technology sector has grown significantly in the past decade, and it currently contributes about 18% of GDP, compared to 10% in the United States and about 6% in the European Union. About 14% of all employees work in the technology sector.
The Israeli economy depends on high-tech products and exports, which constitute about 50% of total exports, in addition to the taxes imposed on this sector.
“While the high-tech industry is more diversified now, the conflict comes at a difficult time for the high-tech industry globally, and Israel has seen a notable decline in capital inflows and fundraising activities this year compared to the past two years,” Mulbrunner said.
budget deficiency
Moody’s expects the budget deficit to widen to 3% of GDP in 2023 and more than double to about 7% of GDP in 2024.
Israel’s fiscal deficit actually expanded to 2.6% of GDP last October, compared to 1.5% the previous month. In 2022, Israel achieved its first budget surplus in 35 years, at 0.6% of GDP.
The report stated in conclusion that since the outbreak of the war, Israel has been forced to borrow a sum of 30 billion shekels ($8 billion), according to Ministry of Finance data.
