JPMorgan Cuts Israel’s 2024 Growth Forecast - Warns of Delayed Rate Cuts and Rising Inflation

Amid escalating tensions and active military conflict between Israel and Iran, the world’s largest investment bank, JPMorgan Chase, has significantly downgraded its growth forecast for Israel’s economy in 2024. In a newly published report, the bank revised its projection downward by 1.2 percentage points, to just 2%, citing the economic impact of the war.

The bank also raised its forecast for Israel’s budget deficit, now expecting it to reach 6.2% of GDP, up from the previous estimate of 5%.

2026 Outlook More Positive

Despite its short-term pessimism, JPMorgan’s longer-term outlook is more optimistic. The bank upgraded its 2026 growth forecast for Israel to 4.2%, up from 3.5%, assuming a positive resolution to current geopolitical tensions.

War to Deepen Inflation

JPMorgan analysts say the ongoing war is likely to fuel inflation, pushing the Bank of Israel to delay interest rate cuts. The first expected rate reduction is now forecast for November, rather than September, as previously estimated.

“Wars are inflationary,” the report notes, warning that the conflict could tie the hands of Israel’s central bank in the near term.

Nonetheless, JPMorgan still expects the total rate cut cycle to reach 75 basis points, provided there is no further escalation.

In its review, JPMorgan compares the current disruption to the shocks caused by the COVID-19 pandemic and the aftermath of the October 7 Hamas attacks. However, the bank believes the current impact may be less prolonged, expecting the acute phase of the conflict to last only a few weeks, likely confined to June.

While the deterioration in security is expected to weigh heavily on economic activity, the bank forecasts that the damage to Israel’s productive capacity and capital markets will be moderate and temporary.

Inflation Outlook: 2025 Forecast Raised to 3%

JPMorgan also revised its 2025 year-end inflation forecast upwards, from 2.9% to 3%, citing a range of inflationary pressures including:

• Rising flight and logistics costs

• Higher fuel prices

• Increased rents

• Larger government budget deficits

“The supply shock now appears different,” the report says. “It has a potentially greater impact on productive capacity and less on the labor market.”

Positive War Outcome Could Shift Economic Narrative

JPMorgan analysts emphasize that monetary policy and market sentiment will remain highly sensitive to developments in the war.

“A positive resolution—especially if it accelerates the end of the war in Gaza—should shift markets' perception of geopolitical risk and support Israeli financial assets,” the bank writes.

In such a scenario, the Bank of Israel could face fewer constraints, and rate cuts might resume sooner than expected.