Muhammed Habisa
09 April 2024•Update: 10 April 2024
JERUSALEM
Israel’s economy has lost strength since Tel Aviv launched a war against the Gaza Strip on Oct. 7, with the central bank recently revealing that the cost of the attacks is expected to hit around $67 billion.
The figure does not include damage caused by tensions with the Lebanese Hezbollah group in northern Israel, according to a report by Fitch Ratings published March 31, which is expected to double due to the escalation of tensions in the north.
Calling up reservists
Israel’s losses include those from a call-up of reservists, whose daily cost was calculated at $162.2 million during the peak period between November and January, according to the Yedioth Ahronoth newspaper.
The damage to property in Israeli settlements near the Gaza border was estimated at $4.1 billion to $5.5 billion, and damage to northern settlements caused by tensions with Hezbollah is believed to have reached somewhere in the range of $1.5 billion to $1.9 billion, according to a report by the Israeli i24 news website last week.
Loss of labor due to preventing entry of Palestinian workers into Israel
The attacks hit the Israeli labor market hard as the country lost more than 178,000 Palestinian workers, most of whom work in vital sectors such as construction, tourism, agriculture and services.
The Israel Builders Association announced a deficit of 140,000 jobs in January due to a slowdown in the process of finding foreign workers, noting that 50% of construction sites are closed due to labor shortages, while active construction sites are working at only 30% capacity.
About 41% of construction sites in Tel Aviv and the central regions and 58% of the sites in Jerusalem have been closed since Oct. 7, according to a survey released by the Israel Central Bureau of Statistics.
Downgrade of credit rating
Credit rating agency Moody’s announced in February that it downgraded Israel’s foreign and local sovereign currency rating from A1 to A2, and its foreign and local currency senior secured rating from A1 to A2 due to a negative outlook.
The downgrade signals that investors may become more cautious and set higher interest rates to face the risks Moody’s estimates for the Israeli economy.
Fitch Ratings agency notes in its report that geopolitical risks related to the war are still high with the risks threatening the country’s credit file expanding.
It expects a near-term jump in debt/GDP and continued high military spending as long as the war continues, as the agency estimates the debt-to-GDP ratio to rise to 65.7% in 2024 and to 67% in 2025.
Fitch announced a downgrade after Moody’s downgraded five Israeli banks in a report published in February.
Moody’s’ report downgraded Bank Leumi Le-Israel, Bank Hapoalim, Mizrahi Tefahot Bank, Israel Discount Bank and First International Bank of Israel from A2 to A3.
Israel’s GDP
The local economy contracted by 20% in the fourth quarter due to the war in Gaza, as per data from the Central Bureau of Statistics in Israel.
Year-on-year contraction was driven by a collapse in all sectors at a time when investments fell 70%.
Private consumption declined 27%, pursuant to an annualized reduction of 90% in public consumption in the same period.
The cause of the declines was the war on Gaza, according to the statistical bureau, as the call-up of reservists, the cost of alternative housing allocated to Israelis and labor shortages in the construction sector changed the composition of its GDP.
Israel’s real estate market
Only 70,000 apartments were sold in Israel in 2023, marking the lowest in three decades, according to a study by Shmuel Abramson, chief economist at Israel’s Finance Ministry.
The real estate market in Israel has worsened in tandem with the ongoing war in Gaza, the reduction in construction activity due to the decline in the Palestinian workforce by 90,000 and rising interest rates.
*Writing by Emir Yildirim
