Bank of Israel's Growth Forecast Faces Scrutiny Over Real Economic Picture
Translated & summarized from Ice by baba
The Bank of Israel has raised its economic growth forecasts for 2026 and 2027, but Psagot Investment House analysis suggests a more complex picture. Excluding foreign-based exports, particularly Nvidia chip sales, the projected growth is significantly lower, indicating a potential slowdown. Economic activity and labor market data also present mixed signals, with AI potentially impacting job openings. Political uncertainty and budget needs may affect future interest rate decisions.
The story in 6 lines · by baba
- Bank of Israel forecasts 5.6% growth in 2026 and 7.5% in 2027.
- Psagot analysis shows lower growth excluding foreign-based exports like Nvidia chips.
- Revised Psagot forecast predicts 3.4% growth in 2026 and 5.1% in 2027.
- Israel's GDP may not reach pre-war potential by end of 2027.
- Labor market shows low unemployment but declining job openings in some sectors.
- AI integration and political uncertainty may influence future economic trends.
The Bank of Israel has projected a significant economic recovery, raising its growth forecasts for 2026 to 5.6% and for 2027 to 7.5%. However, a recent analysis by Psagot Investment House suggests a more complex reality behind these optimistic figures. Psagot highlighted that a substantial portion of the projected growth is attributed to Israeli exports conducted abroad, particularly sales of Nvidia chips globally.
When this foreign-based export activity is excluded, Psagot's revised forecast indicates an economic slowdown. For 2026, growth is expected to be only 3.4%, down from a previous estimate of 4%, and for 2027, it is projected at 5.1%, a decrease from the earlier 5.5% forecast. According to Psagot economists, this means that even by the end of 2027, Israel's GDP is not expected to return to its potential level as estimated before October 2023.
Economic activity data also points to a mixed picture. The monthly economic activity index rose by 0.3% in September, continuing a long-term growth trend but not at a pace sufficient to close the gap created by the war. Psagot estimates business sector growth at approximately 5% in the third quarter, a significant drop from the 16.6% in the previous quarter.
The labor market shows mixed signals, with a low unemployment rate of 3% and an increase of about 3,900 job openings in September, reaching approximately 148,000. However, on an annual basis, there has been a decline of over 10% in job openings in the retail sector and nearly 20% in finance. Psagot suggests that the integration of artificial intelligence technologies may be contributing to this decrease by reducing the need for certain tasks.
Regarding interest rates, Psagot's forecast does not rule out further reductions. Nevertheless, political uncertainty and the need to formulate the 2027 state budget are expected to influence the Bank of Israel's decision-making process on this matter.
