An assessment of the state of the Israeli economy and what is expected during the new year

Experts agree that the Israeli economy is witnessing difficult days and a miserable situation unparalleled in years, as it’s incurring tens of billions of dollars in material losses, not to mention human losses, as a result of the ongoing, relentless war in Gaza, as well as the shaking of the confidence of residents and investors, at all levels.

In this context, the Washington Post reported that economists said that the impact so far is comparable to the worst of the Covid pandemic, but it could exceed those losses if Israel continues its devastating war against Gaza.

Since Hamas surprise attack on October 7, Israeli government spending and borrowing increased, tax revenues decreased, and credit ratings may be affected despite the clear procrastination practiced by the three major US rating agencies, Fitch & Moody’s, Standard & Poor’s, in lowering Israel’s rating to the low levels it deserves, similar to what it did with Russia, for example, after its invasion of Ukraine in February 2022.

While the Bank of Israel expects Central Bank, GDP growth declines to 1% in 2024, down from previous expectations of 3% in 2023.

Some economists talk about a deflation expectations for the Israeli economy in the year 2024, especially since the impact is worrying on the high-tech sector, which is the engine of the Israeli economy, while many of its employees join the ranks of reserve soldiers, and every day they are in Gaza, employers struggle to continue investing in research and development and maintain their share at the market.

Israel is spending huge amounts of money on deploying more than 220,000 reservist soldiers in battle and paying their salaries, and many of these reservists are high-tech workers in the fields of the Internet, agriculture, finance, navigation, artificial intelligence, medicines, and climate solutions.

The Israeli authorities also support about 200,000 people evacuated from settlements around the Gaza Strip and along the border with Lebanon, and shelter and feed many of them in hotels in the north and south at government expense.

Also, tourism has stopped, as the beaches of Tel Aviv and the Old City of Jerusalem appear empty of foreigners.

Christmas celebrations in Bethlehem in the occupied West Bank were canceled this year; The cancellation estimated losses at about $200 million.

Construction work, which usually relies on Palestinian labor from the West Bank, has stopped.

Since Israel launched its aggression, it has suspended work permits for more than 100,000 Palestinians.

Also, exports declined across the board; Production from Israeli gas fields in the Mediterranean, such as Tamar, was halted early in the war, although they are now partially operational.

The call-up of 360,000 reserve soldiers, displacement, and the indirect effects of the war led to the unemployment of up to 20% of Israeli workers.

Accordingly, economists conducted by the Washington Post estimate Interviewed with them, the war has cost the government about $18 billion so far, or $220 million per day.

In this context, the former Deputy Governor of the Bank of Israel and Professor Emeritus at Tel Aviv University, Zvi Eckstein, and his colleagues, conducted an audit of the numbers and concluded that the impact on the government budget, including a decrease in tax revenues, for the fourth quarter of 2023 amounted to $19 billion, and is likely to reach $20 billion in the first quarter of 2024.

In fact, a war that lasts for another 5 to 10 months could cost Israel up to $50 billion; This is equivalent to 10% of GDP.

However, the war could continue for a longer period, as the administration of US President Joe Biden expects that in 2024, the war operations will shift from intense bombing and violent street fighting between the Israeli army and the Palestinian resistance forces to more targeted attacks.

Last week, Israel’s Prime Minister Benjamin Netanyahu warned that the end of the war isn’t near.

In this regard, the professor at Ono College says, Academic Yaron Zelekha, a former economist at the Israeli Ministry of Finance, said it’s important to understand the implications of the war.

There is the cost of waging war, the sharp decline in economic activity and the resulting decline in revenues.

Deficit spending results in borrowing costs, which will affect the budget long after the shooting stops.

An opinion poll conducted by the Latet group showed that charity reported that 45% of Israelis admit they are concerned that the war will bring them economic hardship.

Economists told the Calcalist newspaper, that Hamas attacks was a disaster for the economy, as it eroded the confidence of citizens, businesses, and investors in the government and the army, and it will be difficult to restore this confidence.

The United States provides Israel with military support worth $3.8 billion annually, and the two countries share defense technology to give the entity a strategic advantage over its opponents and neighbors.

It also sells bombs, missiles and projectiles for hundreds of millions of dollars.

The White House is currently working on passing an additional funding bill amounting to $14 billion in aid in early 2024, but it has stalled in Congress, where the two sides are discussing funding for maintaining the US border.