Israel’s Ministry of Finance reduces its growth prospects for this year and next year, citing the intensity of the ongoing war and the expansion of fighting with the Iranian-backed Hezbollah terrorist group in the north.

In particular, the chief economist of Israel’s finance ministry is revising the finance ministry’s growth forecasts ahead of discussions on the 2025 state budget that begin on Thursday. The Treasury says it now expects the economy to expand by just 0.4% in 2024 and 4.3% in 2025. That’s down from its September forecast of 1.1% in 2024 and 4.3% in 2025. .6% for 2025.

“Our forecast in early September was based on a scenario of continued fighting until the first quarter of 2025 and did not assume further intensification of fighting or expansion to other fronts,” reports the Ministry of Finance. “This scenario is no longer relevant since the fighting expanded to the northern arena at the end of September.”

“Our current baseline scenario assumes continued intense conflict through most of the last quarter of 2024, including an increase in reserve recruitment and a slowing range of reserve recruitment thereafter and throughout 2025.”

Earlier this month, the Bank of Israel cut its forecast for economic growth to 0.5% in 2024 and 3.8% in 2025. This forecast was revised down from an earlier estimate in July of 1.5% in 2024 and 4.2% in 2025, when the central bank assumed that heavy fighting with Hamas would subside by the end of the year.