Yaron warned of major repercussions on Israel's economy during the first weeks of the war (Anatolia)

Bank of Israel Governor Amir Yaron predicted today that the costs of the war on the Gaza Strip will reach 10% of GDP, following a meeting of the Bank's Monetary Policy Committee. He warned of significant economic impacts, both on real activity and on financial markets.

He added that "there is a noticeable negative impact on Israel's economy during the first weeks of the war," and pointed out that the Central Bank based its forecasts on the Israeli economy on the assumption that the impact of the war will continue until next year, and stressed that the expectations were made on the assumption that the war will be mostly on one front, which is Gaza, without opening the rest of the fronts.

The costs of the war include direct expenses associated with military operations and reconstruction efforts.

The Bank of Israel's governor's estimate is consistent with estimates published earlier this month by Israel's National Economic Council, which estimated that the cost of the war could reach NIS 200 billion ($54 billion).

10% of Israel's GDP is worth about $52 billion, according to the country's GDP figures for 2022 of nearly $520 billion.

Last week, a study by an Israeli consulting firm showed that Israel's losses due to the war on Gaza could reach $48 billion this year and next.

The report by Leader Capital Markets, an Israel-based financial advisory firm, said Thursday that Israel would likely bear two-thirds of the total costs, with the United States paying the rest in the form of military aid.

Last month, Israel's Finance Ministry estimated that the war costs the economy $270 million a day, noting that the end of the war does not mean the losses stop.

Maintain interest rate

Meanwhile, the Bank of Israel announced that interest rates will remain unchanged at 4.75%, the highest since 2007, according to historical interest rate data released by the Bank of Israel, in a statement issued today.

Indicators of economic activity during the war indicate an initial contraction in trade activity, with some gradual recovery recently, according to the statement.

The Bank of Israel's research department lowered its GDP growth forecast to 2% in both 2023 and 2024, compared to 3.5% in previous estimates.

The bank said government expenditures due to the war were estimated at NIS 160 billion ($43 billion). The debt-to-GDP ratio is expected to reach 63 percent in 2023, 66 percent in 2024, and 58 percent in 2022.

In the credit market, the bank noted a slowdown in bank credit to small and micro enterprises, adding: "The Bank of Israel has activated a number of targeted policy tools to support the process of providing credit to this sector."

"While the volume of activity in the housing market remains moderate, the industry is facing difficulties as a result of the war. In the past 12 months, house prices have fallen by 0.2 percent," the statement said.

Source : Al Jazeera + Agencies