Tuesday, September 23, 2014

Gaza War's Economic Impact on Israel Was Minor

From Globes [online], Israel business news, September 21, 2014:

International rating agency Standard & Poor's has reiterated its sovereign ratings for Israel, and sees the fiscal effects of Operation Protective Edge in Gaza as minor.
"In our view, the recent Gaza conflict will lead to only a modest weakening of Israel's fiscal trajectory. Although Israel may temporarily reverse its fiscal consolidation, we expect its gross general government debt ratio to remain largely flat in the next three years," the agency says in affirming its 'A+/A-1' foreign and local currency sovereign credit ratings on Israel, with a stable outlook.
"The stable outlook reflects our view that the government will maintain stable public finances and that the impact of security risks on the Israeli economy will be contained..." 
As far as Operation Protective Edge is concerned, the agency writes,
"Although the recent fighting in Gaza is a reminder of the long-term threat posed by geopolitical risks, we consider that in the short term, the effect will only be to accentuate the economic slowdown and modestly weaken the fiscal account. The fighting has not changed our view of Israel's core credit strengths, such as its prosperous and diverse economy, the contribution of natural gas production to a healthy external balance, and its relatively flexible monetary framework." 
The operation is however reflected in a reduction in Standard & Poor's growth projections for the Israeli economy. "Economic activity was already slowing in the first half of 2014, and the July-August fighting is likely to have constrained economic activity in the third quarter as well. As a result, we are lowering our projection for 2014 real GDP growth to 2.3%, which represents the lowest rate of growth since 2009, nearly one point lower than our estimate six months ago. The new projection includes an estimated contribution from new natural gas production of about 0.3%.

For 2015-2017, we forecast that GDP growth will return to 2012-2013 levels, slightly above 3%. In per capita terms, this equates to trend growth of slightly less than 1.5% per year. Income per capita is now above $38,000, making Israel one of the highest-income economies, in our view. Israel's trend growth is also at the higher spectrum of its peer group," Standard & Poor's analyst Elliot Hentov writes.
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