The Chief Economist at the Ministry of Finance, Shira Greenberg , published today (Tuesday) the latest macro forecast in which she reduced the GDP growth expectations and the expected level of state revenues. According to the latest data, growth at the end of 2023 will amount to 2.7%, compared to a forecast of 3% from last January. According to the latest estimate, state revenues will reach 463.6 billion shekels, reflecting a loss of approximately 5.3 billion shekels compared to the previous official forecast of the Treasury.
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The expected decrease in state revenues will lead to an increase in the deficit. The state budget that will be approved next week is built on the premise of a very low deficit, of 0.8%-0.9% of GDP in 2023-2024. According to the new forecast, the deficit will increase to 1.1% this year and rise to 1.35% at the end of next year. Despite the increase in the deficit, this is a significantly lower forecast compared to the latest forecasts in the markets. The consensus among analysts has so far reflected an expectation of the deficit breaking to a much higher level, of about 2.5%-3.5%.
The biennial budget for 2023-2024 was approved by the government in February according to a revenue forecast that is NIS 16.2 billion higher than the latest forecast that is being published now. The main decrease compared to the previous forecast is in 2024, where a reduction of almost NIS 11 billion in revenues is envisaged. Nominally, state revenues are expected to decrease this year by 0.9% compared to 2022.
The Treasury emphasizes that in light of the slowing trends, which are felt mainly in the high-tech and real estate sectors, it is now especially important to maintain a restrained budgetary conduct. "Most of the risks to the forecast are downward, and the probability of their realization has increased in this update, so it is important to maintain fiscal space that will allow dealing with future changes in the forecast The growth," Greenberg wrote.
The main economic forecast does not bode well for inflation either. The forecast was updated upwards to an annual price increase of 3.2% at the end of this year and 2.9% next year. That is, the inflation forecast climbed up by 0.4% in 2023 and by 0.2% in 2023.
In the review, Greenberg emphasizes that the legal reform, if realized, has not yet been taken into account in the calculation of the new forecast. In the meantime, this is based on the global macro data, and on the 'uncertainty' that has spread in recent months in the Israeli capital market: "The interest rate increases and the uncertainty in the global economy, as well as the uncertainty in the local economy in particular around the legal reform, add to the slowdown in investments and affect the high-tech industry."
Shira Greenberg (Photo: Flash 90)In addition, the Chief Economist of the Ministry of Finance warned against increasing the pensions of the barrens and claimed that the move could harm their integration into the labor market. "The government's decisions within the framework of the coalition agreements regarding the increase of welfare allowances and the activation of the food aid program without household earning capacity tests are expected to lead to damage to the integration of ultra-Orthodox men into employment," she wrote in a forecast for Israel's economy in the next four years.
She also came out against increasing the unofficial education budget, another clause in the coalition agreements. "The move is expected to lead to the diversion of students to institutions that teach core studies at lower volumes, or that do not teach core at all, throughout all stages of study," she wrote. "Thus it is expected to continue and deepen the decline in the levels of education relevant to the job market of ultra-Orthodox students." This is a phenomenon that the Treasury has witnessed among ultra-Orthodox youth in the last decade.
A protester said: "The economist's report is gloomy and reflects what we said from day one – the legal coup will destroy the Israeli economy and high-tech. In an attempt to gain unlimited power, the government is selling the future and economic security of all of us. The economy cannot be suspended and the investors cannot be smeared – stop the madness and shelve the anti-democratic legislation immediately. The damage is already here, the State of Israel is increasingly positioning itself as an unstable and unsafe country for investments. The current finance minister will be remembered as the worst finance minister in the history of the State of Israel."
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