In recent weeks, the ongoing war between Israel and Hamas has already strongly affected almost all sectors of the Israeli economy. Furthermore, the probable land invasion of the Gaza Strip by the Israeli army risks further expanding the economic consequences of the conflict, as well as obviously the military and humanitarian ones.
Israel’s economy is the most solid in the Middle East: its gross domestic product (GDP) is more than 450 billion euros, public debt is lower than that of many Western countries and is worth 60 percent of GDP , the central bank has accumulated 200 billion euros in foreign currency reserves. Although the country has been at war frequently over the past 75 years, its economy has always been able to recover from the war effort. But the current situation still risks having greater effects than in the past.
The effects will be at a “macro” level, that is, throughout the entire economic system, with state accounts to be reviewed and necessary interventions from the central bank, but they will also be more widespread for companies, construction companies, restaurants and small businesses, without count the tourism sector, which is currently completely blocked.
One of Israel’s first responses to the October 7 Hamas attacks was the mobilization of more than 360,000 reservists, citizens who have completed compulsory military service and who can be called up to temporarily return to the army. They correspond to 4 percent of the total population and almost 10 percent of the active population. Recruiting so many people has caused staffing shortages in various sectors, including technology, which mostly employs young people. Many, especially in the cybersecurity field, have military training. After the first days in which all production activities stopped due to the shock caused by the events, the sector is now restarting with some difficulty: it contributes 18 percent to the national GDP.
The new war with Hamas has had as a further immediate consequence the blocking of all borders, not only with Gaza, but also with the West Bank: in the occupied territories alone, there are almost 140,000 Palestinians in possession of an Israeli work permit. Many were employed by construction companies: jobs in big cities seem mostly at a standstill at the moment. And replacing that workforce will be particularly complex in a country where the unemployment rate is low, between 2 and 2.5 percent. Many Asian workers have also left Israel in the last twenty days, representing another non-negligible portion of the country’s workforce.
The Erez crossing through which hundreds of Palestinian workers passed every day on their way to Be’er Sheva (AP Photo/Fatima Shbair)
For almost two weeks, all shopping centers and most restaurants were also mostly closed, more due to the absence of customers than staff. Credit card purchases in the last week they fell by 12 percent compared to the same period a year ago, with more significant decreases in all sectors, only partially offset by growth in spending on food and basic necessities in supermarkets.
Many schools have switched to distance learning, and many parents therefore find it particularly difficult to manage family commitments with children and work, as happened during the pandemic period. In some families, one of the parents has been called up as a reservist: it may be even more difficult for the other to continue working.
The tourism sector was one of the most important in the country and the months between October and December were considered “high season”: today the only hotels that have some rooms occupied are those that host families who have moved from areas considered at risk. Before the attacks, the city of Sderot had 30 thousand inhabitants, today more than 90 percent of people have been evacuated and almost all the city’s shops and businesses are closed.
An empty beach in Tel Aviv (AP Photo/Petros Giannakouris)
The Israeli government has envisaged a massive aid plan defined as “without spending limits”: it should be worth at least one billion euros, be more substantial than the Covid period and concern all sectors and regions of the country. These measures should cause an increase in public debt of more than two percentage points this year alone, with heavier repercussions in the next, especially if the emergency situation were to prolong. But these are manageable solutions for a country that – as mentioned – is less indebted than average.
An intervention has also already been started to support the local currency, the shekel, which has lost over 5 percent since the beginning of the conflict: today more than 4 shekels are needed for a dollar. To support the national currency, the Central Bank sold 30 billion of its dollar reserves. Since the beginning of the war, the Tel Aviv stock market indices have lost around 9 percent, while the contraction in GDP is estimated at around 2 percent both this year and next.
The most However, some economists believe that Israel can withstand, at least for a few months, a contraction of the economy due to the war, as well as the considerable costs to support it, without excessive repercussions. In this sense, we must also consider the economic aid already defined and arriving from the United States: Joe Biden’s administration has allocated 14.3 billion dollars, of which 10.6 are destined for armaments. Problems could arise if the war with Hamas were to extend for a much longer period or involve other countries and organizations present in the area: it is a hypothesis that is difficult to exclude at the moment, given the lack of clarity on the timing of the ground invasion and on subsequent moves.
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