On Monday, the central bank of Israel revised its economic growth forecast downward, citing risks which are being presented by the escalation of the conflict with Hamas militants in the Gaza strip.

The new revised projections show gross domestic product (GDP) expanding by 2.3% in 2023, and by 2.8% in 2024, a reduction from the regulator’s previous estimate in July of 3% for both years, before it was forced to weigh the effect of the conflict on the nation’s economic growth.

The outlook foresees the main effects from the conflict manifesting in the economy in the fourth quarter of the year. Although the regulator did not alter lending rates, as policymakers sought to support the shekel following its slump to an 11-year low, the regulator warned that if the war were to expand wider, it would be forced to make further adjustments to its policy. The central bank maintained the benchmark rate at 4.75%, the highest the rate has been since 2006.

The regulator said, “The interest rate path, and the use of additional monetary policy tools, will be determined in accordance with this purpose and with developments in the war, as well as with data on economic activity and the inflation dynamics, in order to continue supporting the markets’ stability and achieving the policy objectives and the needs of the economy.”

Since the conflict between Israel and the militants of Hamas began with a terrorist raid on the Israeli border region with Gaza on October 7th, the shekel has declined every single day.

As the shekel has depreciated and presented the risk of inflation, the central bank has warned the conflict poses the risk of a huge disruption to the economy, which could depress consumer demand for goods and services. In addition, labor shortages produced by the military mobilization, as well as the destruction of infrastructure are expected to also depress both demand and supply.

Israel’s government also noted its new projection for its budget deficit has been revised upward due to the costs of the military actions, with the new revised projection being for 3.5% of the nation’s GDP this year, due to a massive wartime stimulus program which is being planned.