The Impact of the Israel-Hamas Conflict on Israel’s Economy
The recent conflict between Israel and Hamas militants has had a significant impact on Israel’s economy. With a depleted workforce, constant rocket sirens, and the shock of unexpected attacks, the economic cost of this war will be unlike anything Israel has experienced in decades.
Construction sites in Tel Aviv were forced to close, causing a halt in activity and costing the economy an estimated 150 million shekels ($37 million) per day. This not only affects contractors and industrialists but also every household in Israel, according to Raul Sarugo, president of the Israel Builders’ Association.
Israel’s economy, valued at almost $500 billion and known for its strengths in technology and tourism, was healthy for most of 2023. It was on track to achieve 3 percent growth this year with low unemployment. However, with a ground invasion of Gaza looming and the war potentially escalating into a regional conflict, Israelis are cutting back on spending, except for essential items like food.
Ratings agencies have already warned that they may downgrade their assessment of Israel’s creditworthiness. The call-up of hundreds of thousands of army reservists has left a significant manpower gap and disrupted supply chains from seaports to supermarkets. Retailers are also furloughing employees, and the shekel has slumped.
The conflict has not only affected Israel’s workforce but also halted the movement of Palestinian laborers from Gaza to Israel and curtailed the flow from the occupied West Bank.
Jerusalem’s main shopping mall has seen a drastic decline in traffic, with escalators and walkways empty for the first two weeks of the war. While some patrons are slowly returning, there is still a noticeable decrease in footfall.
Hotels are only half-filled with Israeli evacuees from border areas, leaving most rooms empty. Factories near Gaza continue to operate, but there is often a shortage of truck drivers to make regular deliveries.
Credit card purchases have seen a 12 percent decrease in the last week compared to the same period last year. Most categories have experienced sharp drops, except for a spike in supermarket shopping.
The high-tech industry, which thrived during the COVID-19 pandemic, is now struggling. Typically accounting for 18 percent of Israel’s GDP and half of all exports, the industry is experiencing a significant decline in productivity. Barak Klein, CFO at fintech firm ThetaRay, explains that it is challenging to focus on day-to-day work when there are existential concerns. Additionally, many employees have been called up for reserve duty or have children at home due to school closures.
To mitigate these challenges, ThetaRay has set up a daycare center for employees who need to bring their children to work and has relied on their offices abroad to handle some of the workload.
The impact of the conflict is also felt by investors. Erel Margalit, from JVP venture capital fund, has been attending board meetings and hearing about different business continuity plans. Investors need assurance in these uncertain times.
Approximately 10-15 percent of the high-tech workforce has been called up for reserve duty, according to Dror Bin, CEO of the state-funded Israel Innovation Authority.
In conclusion, the Israel-Hamas conflict has had a profound impact on Israel’s economy. The closure of construction sites, disruption of supply chains, decrease in consumer spending, and challenges faced by the high-tech industry are just a few examples of the economic consequences. As the conflict continues, Israel’s economy will face further challenges that will require resilience and adaptation to overcome.