JERUSALEM: Israel has cut its forecasts for 2014 and 2015 economic growth due to the impacts of the 50-day Gaza war with Palestinian militant group Hamas and a weaker global environment, a finance ministry source said on Monday.
The ministry now expects the economy to expand 2.4 percent this year, down from a previous estimate of 2.9 percent, and by 2.8 percent in 2015, down from 3 percent, the source said.
Growth in the third quarter of this year will be near zero, with a rebound expected in the final three months.
"We see much faster growth in the fourth quarter because from our experience in previous operations, most private consumption which is dramatically reduced, rebounds," the source added. "It must grow faster to get to 2.4 percent."
The government is due to release a second estimate of gross domestic product growth in the April-June period - prior to the July-August Gaza conflict - on Wednesday.
It initially reported an annualised expansion of 1.7 percent compared with the prior quarter - well below forecasts and reflecting a steep drop in exports, which account for some 40 percent of Israel's economic activity.
"One of the reasons for the slowdown in the growth environment is the slow recovery in world trade and the world economy," the finance ministry source said.
The International Monetary Fund has estimated a 4.5 percent increase in global trade this year, but the source said the finance ministry expected it to be far lower.
Explaining the adjustment to next year's growth forecast, the source said tourism, which was hit by a wave of cancellations amid daily rocket attacks on Israel from Gaza, was likely to remain weak.
The rocket salvoes, many of them intercepted by Israel's Iron Dome anti-missile system, also kept at consumers home.
The Bank of Israel will provide its economic updates on Sept. 22. It currently projects a 2.9 percent growth estimate for 2014 and 3.0 for 2015, but officials have said the war will shave about half a percentage point from growth this year.
On fiscal policy, the ministry source expects the government to meet a budget deficit target of 3.0 percent this year "taking into account spending of 100 percent of the budget." In August, the deficit was 2.6 percent of GDP over the prior 12 months.
The ministry forecasts total revenue of 285.5 billion shekels this year and 280.3 billion in 2015, the source said.
Costs of the Gaza war, estimated at as much as 9 billion shekels, or $2.5 billion, are expected to be absorbed fully in the 2014 budget.
Demands for billions of dollars of extra funding for the military have set the scene for a bruising political battle over the 2015 budget, however, as Israel tries to balance the needs of a weakening economy with security threats from Gaza to Iran.
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