Israel cuts growth forecast due to conflict expansion, US tariff policies

JERUSALEM - The Israeli Ministry of Finance on Thursday night lowered its growth forecast for 2025 to 3.6 percent, from the 4.3 percent predicted in January.

The ministry explained that the baseline scenario of the previous forecast assumed a reduction in combat and military recruitment in the current year, but this has not materialized so far.

The revised scenario anticipates an expanded call-up of reserve forces for combat operations in the second quarter of 2025, followed by a gradual reduction in reserve recruitment beginning only in the third quarter.

The new forecast also takes into account the impact of the US new import tax policies and recent official data on the activity of the Israeli economy.

The Israeli ministry assumes that the US tariffs rise will lead to a decrease of about two percent in global trade in 2025 and 2026.

It also revised down the Israeli economy's growth forecast for 2026, from 5.4 to 4.4 percent.

Gad Lior, a senior analyst at the Yedioth Ahronoth newspaper, told Xinhua that the reduction in the growth forecast and the recent larger-than-expected rise in Israel's inflation are expected to lead to a decline in economic activity and a hit to tax revenues, alongside an increase in government spending.