Israel after the war: what comes next?

The Israeli cabinet’s decision to delay a vote on approving the ceasefire with Hamas adds a high degree of uncertainty as to whether it will take effect on Sunday, as intended. If a ceasefire can stick, it could lead to a sustained improvement in the outlook for growth, inflation and Israel’s public finances. This should provide support to the shekel and reduce sovereign risk premia. We’d be more confident that the central bank could cut interest rates soon. But the war has also led to shifts in the nature and structure of Israel’s economy, including the security threat and the labour market, that will have long-lasting effects.