S&P Upgrades Israel Growth Forecast to 5.5% for 2024 Amid Tech Boom
S&P upgraded Israel's growth forecast to 5.5% this year and 7% next year, driven by Nvidia's economic impact, while warning that security risks and high fiscal deficits will persist.
S&P Global Ratings has released a special economic review for Israel, revising its growth forecasts upward to 5.5% for the current year and 7% for next year, driven largely by the expanding impact of Nvidia's operations on the local economy. The agency did not announce any changes to Israel's credit rating during the assessment.
According to the rating agency, security risks remain elevated, with potential concerns over a direct military escalation between Israel and the United States against Iran. Analysts project that geopolitical uncertainty in the Middle East will persist through 2027, maintaining heavy pressure on the state budget due to sustained defense expenditures.
Addressing the political landscape, S&P noted that recent election results failed to deliver a clear majority for any political bloc. The agency suggested that a potential change in government could alter diplomatic approaches, potentially increasing focus on strengthening state institutions, diplomatic initiatives, and international alliances, alongside reconsidering military exemption policies for the ultra-Orthodox sector. However, the agency emphasized that both political sides share largely similar security postures.
On the fiscal front, S&P highlighted that Israel's general government revenues rank among the lowest in industrialized economies. In the absence of a political resolution, the state operates under a continuation budget, restricting expenditure frameworks. Without multi-year fiscal adjustments, government deficits are projected to remain high, likely necessitating future tax increases.
A significant factor behind the upward growth revision is the strong performance of multinational technology companies registered in Israel, particularly Nvidia. S&P based its growth projections on comprehensive GDP data, comparing Israel's tech-driven economic distortions to Ireland, while noting that Israel's figures reflect local intellectual property and technology development.
Meanwhile, Israel's debt-to-GDP ratio stood at 68.5% last year, and is projected to reach 65.2% by 2029. Despite this increase, the agency praised the favorable composition of the national debt, which is predominantly held domestically and denominated in local currency. S&P also commended the Bank of Israel for its flexible monetary management, projecting that inflation will remain within the official 1% to 3% target range despite ongoing security challenges.
