The Israeli economy is facing a significant hit to growth projections as a result of the Middle East conflict \u2013 but its central bank chief hopes a quick resolution to the wars in Lebanon and Iran could help cushion the blow.<\/p>\n
Speaking with CNBC’s Karen Tso at the IMF-World Bank spring meetings in Washington, DC, on Thursday, Bank of Israel Governor Amir Yaoron acknowledged there is still “huge uncertainty” around the duration of the conflict, despite recent signs that a resolution may be in sight.<\/p>\n
Israel and Lebanon agreed to an immediate 10-day ceasefire on Thursday following talks in Washington between officials from the two countries. <\/p>\n<\/div>\n
Israel has cut its growth expectations for 2026 from 5.2% to 3.8% as a result of hostilities in the Middle East. <\/p>\n
But Yaron \u2013 who was speaking shortly before US President Donald Trump announced a temporary ceasefire on Thursday \u2013 believes growth could reach 5.5% in 2027 if those conflicts are resolved.<\/p>\n
“It’s a working assumption,” Yaron said. <\/p>\n<\/div>\n
‘boots on the ground’<\/h2>\n\nA reduction in hostilities would reduce geopolitical risks in the Gulf countries as well as Israel and help promote development. But Yaron also acknowledged the possibility of a much more prolonged conflict, which he said would weigh on growth and inflation expectations.<\/p>\n
\u201cThe markets, both in the country and especially in Israel, are taking the view that the geopolitical situation has improved a lot from before,\u201d he explained, pointing to the strength in Israel’s stock market, the shekel’s rally and the return of five-year credit default swaps to pre-campaign levels.<\/p>\n
Conversely, any escalation of the conflict “would clearly hamper development more than currently forecast.” Yaron added. <\/p>\n<\/div>\n
\n\n\n\n![\"Lebanon](\"https:\/\/image.cnbcfm.com\/api\/v1\/image\/108292962-17764015681776401564-45317448013-1080pnbcnews.jpg?v=1776401567&w=750&h=422&vtcrop=y\")
A reduction in hostilities would reduce geopolitical risks in the Gulf countries as well as Israel and help promote development. But Yaron also acknowledged the possibility of a much more prolonged conflict, which he said would weigh on growth and inflation expectations.<\/p>\n
\u201cThe markets, both in the country and especially in Israel, are taking the view that the geopolitical situation has improved a lot from before,\u201d he explained, pointing to the strength in Israel’s stock market, the shekel’s rally and the return of five-year credit default swaps to pre-campaign levels.<\/p>\n
Conversely, any escalation of the conflict “would clearly hamper development more than currently forecast.” Yaron added. <\/p>\n<\/div>\n