In a special update on the Israeli economy, international rating agency Standard & Poor's expressed pessimism about the speed of the post-war recovery that can be expected, despite the jump in GDP announced in the first quarter.
“Israel's first-quarter GDP estimates released by the Central Bureau of Statistics (CBS) on May 16 were broadly in line with our latest economic forecasts. We maintain our below-consensus forecast that real economic growth in Israel will be 0.5% in full 2024. , accelerating to 5.0% in 2025 as the geopolitical situation stabilizes and exports and investment activities rebound, S&P wrote, adding: “We expect the initial economic recovery in the first quarter to be followed by a more moderate increase through the rest of 2024.”
Last week, in a preliminary estimate, the Central Bureau of Statistics reported that Israel's GDP grew at an annual rate of 14.1% in the first quarter of this year (3.3% in the same quarter). However, this represents only a partial recovery from the 21% annual decline in GDP in the fourth quarter of 2023, immediately after the outbreak of the Iron Sword War (5.7% in the same quarter).
Standard & Poor's acknowledges that the growth figure of 3.3% for the first quarter is higher than its estimate of 3%.
Risks to credit ratings remain high
Standard & Poor's stated that “the risks threatening Israel's credit file remain high,” indicating the possibility of an escalation in the confrontation with Hezbollah on Israel's northern border. Standard & Poor's added: “We also view the deteriorating relationship between Israel and its closest allies as a risk that could weaken Israel's economic recovery and investor confidence.”
Standard & Poor's also points to the possibility of the National Unity Party leaving the government, and yesterday's requests for arrest warrants against Prime Minister Benjamin Netanyahu and Defense Minister Yoav Gallant by the Prosecutor of the International Criminal Court, as contributing to the uncertainty in Israel.
Government spending increased in the first quarter
The first-quarter recovery failed to impress S&P analysts, who wrote: “Domestic consumption rose significantly by 4.6% in the first quarter of 2024, already exceeding fourth-quarter 2023 levels. However, the increase was driven by Mostly due to high prices. Government spending, with private consumption remaining below pre-war levels in real terms, and exports contracted by 2.9%, after a sharp decline of 5.9% in the fourth quarter of 2023. This was mainly due to the continued decline in tourism and the contraction of the economy. Export of industrial goods.
Standard & Poor's also does not believe that the rapid recovery in the Israeli economy after previous rounds of conflict and after the Covid-19 pandemic will be repeated this time. “We expect unresolved issues in the affected tourism, construction and agricultural sectors, coupled with high regional security and domestic political uncertainty, to constrain a faster recovery this year and we continue to expect GDP growth of 0.5% in all of 2024.” her report says.
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A month ago, Standard & Poor's lowered Israel's credit rating by one notch, from AA- to A+, and kept the rating outlook at “negative.” Standard & Poor's has thus become broadly aligned with Moody's, which lowered its rating on Israel earlier in the year.
Published by Globes, Israel Business News – en.globes.co.il – on May 21, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
