The research division of the Bank of Israel presented today (Monday) two different economic scenarios, against the backdrop of the delay in legal reform legislation. First, they presented an optimistic scenario for a situation in which a broad agreement on the issue would be reached, within the framework of the talks that are currently taking place at the President’s residence.
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“In a scenario where the controversy surrounding the legislative changes regarding the legal system is settled in a way that does not affect economic activity from here on out, the division performs the analysis every quarter,” they noted and added: “In this scenario, GDP in 2023 is expected to grow at a rate of 2.5% and in 2024 at a rate of 3.5% ( Figure 16). The unemployment rate in the prime working ages (25-64) is expected to stand on average in 2023 and 2024 at 4.1% and 4% respectively.”
They also wrote about this scenario: “The average inflation rate in the fourth quarter of 2023 is expected to be 3.9% and at the end of 2024 it is expected to decrease to 2.3%. In addition, the debt-to-GDP ratio is expected to be approximately 59% in 2023 and 58% in -2024”.
However, the division also presented a pessimistic scenario, if no agreement is reached on the issue: “In addition, the division presents a scenario that presents an analysis of possible economic consequences to the extent that legal and institutional changes are accompanied by an increase in the state’s risk premium, damage to exports, and a decrease in local investments and demand for private consumption. This scenario Accompanied by a higher uncertainty than the standard scenario, regarding the strength and persistence of the shocks, therefore the analysis is presented over three years as one piece.”
“The forecast presents an indication of the impact on economic developments and its magnitude in the next three years. In the case where the impact of the changes weakens relatively quickly, the damage is estimated at about 0.8% of GDP each year on average over the period of the three years under consideration.[1] In the event that the perception of the public (the financial markets, the real sector and consumers in the economy) will be that the impact of the legislative changes will persist, the damage is estimated at approximately 2.8% of the GDP per year on average for the next three years,” they added.