On Sunday, Israel’s Central Bureau of Statistics issued a surprisingly optimistic report of the country’s economy in the 3rdquarter of 2024. Remember, these growth results took place while Israel was fighting on multiple fronts against Hamas, Hezbollah, Iran, and Iranian proxy militias in Yemen, Iraq, and Syria.
But the big problem with the data is that they are correct for July-August-September 2024, while early October saw the IDF’s ground operation in Lebanon begin, with a further escalation in the war – and the data already reflect the resulting economic pressures. This is seen in revenue, in the integrated index of the state of the economy, and also in purchases on credit and exports.
OPTIMISM ALL AROUND
So, these are the good numbers for July-August-September 2024:
- 3.8% increase in GDP (0.9% Quarter on Quarter)
- 5.4% increase in business GDP (1.3% QoQ)
- 8.6% increase in private consumption expenditure (2.1% QoQ)
- 21.8% increase in fixed asset investment (5.1% QoQ)
- 5.2% increase in exports of goods and services excluding start-ups and diamonds (1.3% QoQ)
- 10.8% decrease in public consumption expenditure (2.8% QoQ)
- 26.7% increase in imports excluding defense imports, ships, aircraft, and diamonds (6.1% QoQ)
INFLATION HIGHER THAN DESIRED
Israel’s inflation rate remained unchanged at 3.5% in September, continuing to exceed the government’s target range as the country grapples with economic fallout from the ongoing war.
While many nations have seen price pressures ease in recent months, Israel faces unique challenges. Government officials point to war-related disruptions in supply chains as a primary driver keeping inflation above the official target band of 1 to 3 percent.
The persistent inflation presents a complex puzzle for the Bank of Israel ahead of its next rate-setting meeting on November 25. The central bank has maintained a cautious stance, keeping its benchmark rate steady through multiple meetings since implementing a cut in January.
Bank officials have cited a confluence of factors behind their wait-and-see approach: heightened geopolitical risks, stubborn price pressures, and increased government spending necessitated by the war effort. This policy positioning has been held firm through meetings in February, April, May, July, August, and October.
The latest figures suggest policymakers may need to continue threading the needle between managing inflation and supporting an economy under wartime strain, even as their global counterparts begin to ease monetary constraints.
THANK GOD FOR LOYAL INVESTORS
Jonathan Penkin, Managing Director at Goldman Sachs Israel, last October shared insights with CTech on the global investment bank’s two-decade presence in Israel and offered his perspective on the evolving investment landscape within the country’s tech sector.
Goldman Sachs’ Israel operations are powered by a dedicated team of 34 professionals spanning its global banking, markets, and asset management divisions.
“We come to work every day in unusual, even bizarre, circumstances; sometimes we go to the bomb shelter, sometimes I send [employees] home (such as during the Iranian attack), but by and large we are still doing what we do best,” Penkin said.
“We’re very much a part of the Israeli economy, though we’re certainly not a domestic bank. We’ve had an office here for 20 years and our investment bank team is larger than average for the region, allowing us to execute locally and provide seamless coverage to Israeli businesses, especially in tech,” he added.
REALITY AMONG FRIENDS
Despite its decades-long loyalty to the Jewish State, investment giant Goldman Sachs on Monday lowered its growth forecast for Israel for 2024 to 0.4%. Their previous forecast was 0.8%.
Goldman Sachs’ forecast is lower than that of the Bank of Israel (0.5%), S&P (forecast of 0.5%) and the IMF (0.7%) and is similar to the forecast of J.P. Morgan and Israel’s Finance Ministry.
On the other hand, Goldman Sachs is more optimistic about 2025 and raised its growth forecast from 3.2% to 3.6%. But, of course, long-term forecasts are more susceptible to change.
