Israel's economy may contract by 11 pc amid escalating conflict: JPMorgan 

JPMorgan Chase & Co. has predicted that Israel’s economy may contract by 11 per cent during the last three months of the year, Bloomberg reported on Sunday.

The conflict, which erupted on October 7, when Hamas militants launched attacks in southern Israel, has taken a heavier toll than initially predicted.

Bloomberg quoted analyst Nicolaie Alexandru-Chidesciuc as stating that their earlier economic projections were "too optimistic."

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This stark assessment comes as Israel embarks on a ground invasion of Gaza, ruled by Hamas, while Prime Minister Benjamin Netanyahu warns of a "long and difficult" campaign.

JPMorgan's outlook is among the most pessimistic predictions from Wall Street analysts. Investors have already reacted by divesting Israeli assets, with the Tel Aviv main stock index down 11 per cent in local currency terms since the conflict's outbreak, while the shekel has seen its weakest performance since 2012.

Despite these grim figures, JPMorgan maintains a broader perspective, with Israel's gross domestic product anticipated to grow by 2.5 per cent this year and 2 per cent in 2024. The 11 per cent drop expected between October and December is a seasonally-adjusted measure compared to the third quarter.

However, JPMorgan's analysts caution that the risks remain "skewed to the downside".They cite the difficulty in assessing the war's economic impact due to high uncertainty surrounding the conflict's scale and duration and the absence of up-to-date data.

Previous conflicts involving Israel, such as the 2014 battle with Hamas and a 2006 war with Hezbollah, had limited impact on the country's economy.

The current war, according to JPMorgan, has inflicted more damage to domestic security and confidence, resulting in an economic toll.

One significant indicator of the conflict's intensity is the high death toll on both sides.

Hamas's incursion this month, which the United States and others designate as a terrorist organization, reportedly led to approximately 1,400 Israeli casualties, as stated by the Israeli government. In retaliation, Israel's strikes on Gaza have caused the deaths of thousands of Palestinians, according to authorities in the territory.

Prime Minister Netanyahu's government has called up over 350,000 reservists, the largest mobilization in Israel's history, equating to more than 5 per cent of the country's labour force.

Against this backdrop, Israel's central bank maintained its main interest rate at 4.75 per cent on October 23. This decision was aimed at stabilizing the shekel, which saw its longest losing streak since 1984.

(With inputs from Bloomberg)

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