Updated Macroeconomic Forecast – Aaron Institute for Economic Policy

This paper presents the Aaron Institute’s economic growth forecasts for 2024 and 2025, in light of the escalation in high-intensity fighting against Hezbollah and related defense scenarios. Based on forecasts from November 2023, developed in collaboration with defense experts, the projections have been updated due to the prolonged fighting and heightened risk of economic deterioration. However, the updated growth forecast for 2024, currently at 0.2%, depends on the fighting ending by mid-October 2024. Should the ceasefire efforts fail, the economic outlook spans two different scenarios, highlighting the significant current uncertainty. In the first scenario, a high-intensity confrontation against Hezbollah lasting about a month would lead to a negative growth of 3.1% in 2024, with a deficit of 9.2% of GDP and a debt-to-GDP ratio reaching 71%. By 2025, some recovery is expected with a growth of 1.7%, though the deficit would remain high at 7.8%, and the debt-to-GDP ratio would rise to 76%.

In the second scenario, a multi-front war involving Hezbollah and Iran would result in significant negative growth of 4.8% in 2024, with a deficit of 11.2% and a debt-to-GDP ratio of 74.5%. Under this forecast, recovery in 2025 would be slower, with growth at 1.5%, a deficit of 11.3%, and a debt-to-GDP ratio of 82.5%. Given these scenarios and the severe economic risks, it is critically important to take immediate action to prevent a severe crisis and to prepare for long-term growth by implementing stabilization measures and redirecting budgets toward essential and necessary sectors.