Israel’s cumulative deficit for the last 12 months increased by 0.4% to 7.6% of the product in June, surpassing the 6.6% deficit ceiling set in the 2024 budget. The Finance Ministry predicts the deficit will continue to grow until the end of the third quarter of 2024, unless a full-blown war erupts in the North. Despite government spending being 30.9% higher than last year, income only saw an 11.7% increase.
The government is financing the deficit through local bond sales, foreign bond sales, and selling state assets. While the increased government spending includes non-growth-supporting expenses, Bank Hapoalim’s head economic consultant, Professor Leo Leiderman, warned that insufficient support for economic growth during wartime could lead to further credit rating downgrades and increased risk premiums.
Leiderman emphasized the importance of the 2025 budget in determining the government’s economic policy and warned that a continued decrease in Israel’s GDP per capita could lead to a recession. It is crucial for the government to address these challenges to ensure economic stability in the future.