JPMorgan Chase & Co. predicts a drastic 11% shrinkage in Israel's economy during the last quarter of this year due to the intensifying conflict with Hamas. Initial projections made by the bank proved overly optimistic, as acknowledged by analysts, including Nicolaie Alexandru-Chidesciuc, in a note dated October 27.
The dire economic forecast coincided with Israel's expected ground invasion of Gaza, controlled by Hamas, and a sombre warning from Prime Minister Benjamin Netanyahu of a protracted and challenging military campaign. JPMorgan's estimations stand out as some of the most pessimistic among Wall Street analysts. Consequently, investors swiftly divested from Israeli assets, leading to an 11% decline in Tel Aviv's main stock index in local currency since the eruption of violence on October 7. Simultaneously, the shekel plummeted to its weakest position since 2012.
While JPMorgan maintains an overall positive outlook for Israel's gross domestic product, projecting growth at 2.5% this year and 2% in 2024, the estimated 11% contraction between October and December is alarming. Analysts caution that gauging the conflict's impact remains challenging due to the immense uncertainty regarding its scale, duration, and the lack of comprehensive real-time data.
Unlike previous conflicts, this ongoing war with Hamas has severely impacted domestic security and shattered public confidence. The death toll has surpassed previous records, with Hamas' incursion resulting in approximately 1,400 Israeli casualties, according to government reports. In response, Israel's retaliatory strikes on Gaza have tragically claimed thousands of Palestinian lives, as confirmed by authorities in the territory.
Israel's government has mobilized an unprecedented 350,000 reservists, constituting over 5% of the country's labour force. Despite the economic turmoil, Israel's central bank opted to maintain its main interest rate at 4.75% in a bid to stabilize the shekel, which finally saw a modest recovery after enduring its longest losing streak since 1984, offering a glimmer of hope in these challenging times.
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