The general strike in Israel is unlikely to have a major impact on the country’s economy, as stated by a senior researcher at the Institute for National Security Studies at Tel Aviv University. The researcher mentioned that the strike saw limited participation, with small businesses like restaurants and grocery stores remaining open in Jerusalem.
If the strike continues or leads to renewed political instability, it could potentially have a larger economic effect. However, the financial markets might react positively if investors believe that the strike will accelerate an end to the war in Gaza.
Despite the strike, Israel’s stock market was trading positively on Monday. The benchmark Tel Aviv 125 Index, which includes the 125 most valuable companies on the Tel Aviv Stock Exchange and is considered a gauge of Israel’s economy, gained 0.5% in mid-morning trade.
Israel has been grappling with nearly 11 months of war in Gaza, which has significantly impacted its economy. It is anticipated that the economy will contract for a second consecutive year in 2024 after factoring in population growth.
The government has postponed the release of a budget for 2025 due to the escalating conflict, leading to a surge in the budget deficit and debt issuance. The researcher highlighted that the government has not addressed the budget deficit by either reducing spending or increasing taxes.
He emphasized that relying solely on borrowing to finance the war is unsustainable. Israel's 'risk premium' is rapidly rising, indicating that investors are demanding higher returns to invest in Israeli assets like bonds.
Last month, Fitch downgraded Israel’s credit rating, following similar actions by S&P and Moody’s, citing concerns related to the conflict with Hamas. These downgrades from the major credit ratings agencies could make it more challenging and costly for Israel to borrow funds.
Fitch projects that Israel’s budget deficit is expected to reach 7.8% of its gross domestic product in 2024, a significant increase from 4.1% in 2023.
