JPMorgan has revised its economic forecast for Israel, predicting a significant shrinkage in the country’s gross domestic product (GDP) for the fourth quarter. The revised forecast indicates that Israel’s GDP may contract by 11% compared to the previous three months, due to the escalating hostilities with the Palestinian armed group Hamas.
Initially, the bank had forecasted a 1.5% downturn for the quarter, but analysts deemed these projections to be “too optimistic.” JPMorgan acknowledged the challenges of gauging the impact of the war on Israel’s economy, citing the high uncertainty surrounding the scale and duration of the conflict, as well as the lack of high-frequency data available.
In addition to the quarterly forecast adjustment, JPMorgan also revised its initial projections for Israel’s yearly GDP growth. The bank now expects a growth rate of 2.5%, down from the previous forecast of 3.2%. However, there was a slight increase in the outlook for 2024, with a forecasted growth rate of 2% compared to the previous 1.9%.
Analysts at JPMorgan noted that previous conflicts involving Israel, such as the 2014 escalation with Hamas and the 2006 conflict with the Hezbollah group in Lebanon, had a minimal impact on the country’s economic activity. However, they cautioned that the current war with Hamas has had a much larger impact on domestic security and confidence. The death toll, which stood at around 1,400 Israelis as of Friday, has already surpassed previous conflict levels. Additionally, the number of mobilized reservists, exceeding 350,000, is the highest in Israel’s history and represents more than 5% of the country’s labor force.
The hostilities between Hamas and the Israel Defense Forces began on October 7 and have resulted in a global surge in oil prices and safe haven assets like gold and silver. Analysts express concerns that the conflict could destabilize the Middle East, especially if it spreads to neighboring countries, ultimately affecting the global economy as a whole.
It is important to note that the impact of the conflict extends beyond economics, and the loss of life and the humanitarian consequences must also be considered. As the situation continues to unfold, JPMorgan’s revised economic forecast serves as a reminder of the far-reaching implications of the ongoing hostilities in the region.