Economic activity remained low and risk in the macroeconomic area of Israel’s economy remained high in the second half of 2024, according to a Bank of Israel report on financial stability released Tuesday. Risk in the area of asset prices and credit decreased from being high to moderately high.
The risk assessment regarding Israel’s macroeconomic indicators looked at the financial system’s level of exposure to risk stemming from Israel’s macroeconomic condition, showing the impact of this condition on households, the business sector, and more.
This risk remained “high” – the second to highest level of six, in the second half of 2024 due to the security situation and its impact on global sentiments toward Israel, according to the bank’s assessment.
The impact of this risk could be seen when looking at harm to business activity, increased government fundraising needs, and the impact on the cost of fundraising, apparent through the increased returns on government bonds.
Israel’s central bank also highlighted that ratings agencies have lowered the country’s credit rating and left its outlook negative.
While gross domestic product (GDP) has increased since its drop in the final quarter of 2023, it is still lower than it should be based on long-term trends, the bank said.
The Composite State of the Economy Index, which indicates the level of economic activity, continued to be sluggish in October and November, the bank added, saying that this indicates significant challenges in economic activity.
The central bank also looked at the area of asset pricing when assessing risk in the second half of 2024. Risk in this area decreased between the first and second half of 2024 from high to moderately high.
While local stock indices have gone up in the last quarter, stock prices in Israel have remained low compared to indices in the rest of the world, the bank said. This appears to show that stock prices still show assessments of high risk in Israel, the bank said.
Apartment prices continued to rise in the second half of 2024 after price increases resumed in the first half of 2024.
When looking at the area of credit, the risk decreased from high in 2024’s first half to moderately high in the second half. The rate of late repayment of debt on credit remained stable and low when viewed historically, the bank highlighted.
The durability of financial institutions remains high, it said.
Israel's financial outlook
The bank laid out two risk scenarios for Israel’s economy: The first is the continuation of the security risk that came with the outbreak of the Israel-Hamas War, and a possible worsening geopolitical situation.
This could lead to reserves call-ups, harm to employment, increased security expenditure, increased international pressure, and more, the bank said.
The second scenario considers the high uncertainty in the global economy, which comes along with de-globalization processes and lowered global growth, it said.