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Investing.com -- Israel’s economy could see improved long-term prospects following its military campaign against Iran, according to Central Bank Governor Amir Yaron.
Speaking to Bloomberg on Wednesday, Yaron stated that markets indicate Israel’s geopolitical risk has been "significantly reduced" after the recent 12-day campaign against Iran. He emphasized that economic benefits would be particularly strong if the government can end the ongoing war in Gaza soon.
"If the war in Gaza is resolved in a sustainable manner, we will have a clear path for Israel going back to its potential trajectory for growth — and maybe even doing some catching up," Yaron said.
The brief campaign against Iran likely cost Israel approximately 1% of GDP, equivalent to about 20 billion shekels ($5.9 billion), according to the central bank governor.
The governor addressed fiscal challenges, saying, "Israel is going to have to reassess its priorities regarding balancing civilian expenditures, defense expenditures in order to maintain this responsible fiscal standing."
Prime Minister Netanyahu’s government will likely need to revise and increase the budget for 2025, Yaron added. He suggested that "if the geopolitical situation improves, it’ll allow perhaps some shifting between defense spending, civilian spending, and maybe fewer increases in defense spending."
Regarding monetary policy, the central bank has maintained its interest rate at 4.5% for the past year and a half. Yaron identified two opposing economic factors currently at play: the shekel’s appreciation and labor shortages caused by military reserve duty.
"Which of these two comes out and at what phase is still hard to know at this point," Yaron explained. "We still think that a year out we should see the general fundamental forces pushing inflation down, but what’s happening in the shorter run is hard to tell."
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