The Iranian strike over the weekend has been largely shrugged off by Israel’s financial markets and on its own is unlikely to have a major impact on the economy. The key uncertainty now is how Israel responds. An aggressive Israeli military response that leads to direct conflict with Iran is clearly a major downside risk for the economy. But a more prolonged war effort in Gaza now looks possible, which could weigh on Israel’s recovery, add to fiscal strains, put the shekel under pressure and delay further interest rate cuts.
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