Jobless rate spiking, GDP shrinking: Israel’s economic crisis amid Hamas war

  https://www.youtube.com/watch?v=vUcR_E6tkSU    While Israel continues its battle against Hamas, a new problem is looming – the health of its economy. The country’s economy has taken a massive hit in the backdrop of the war and new data shows that the jobless rate has hit nearly 10 per cent. This, as experts have warned Prime Minister Benjamin Netanyahu of the massive scale of the upcoming crisis. Let’s take a closer look at how Israel’s economy has taken a hit amid the war: What happened? As per Strat News Global, Israel’s economy has taken an $8 billion hit since the war began.

Bloomberg has reported that the war is costing Israel $260 million per day.

The country’s budget deficit has increased to seven times its normal level, as per the outlet. Meanwhile, The Times of Israel reported that Standard and Poor’s has predicted that Israel’s economy will shrink by five per cent in the fourth quarter of this year. The rating agency, leaving Israel’s rating unchanged at AA-, blamed “lower business activity, depressed demand from consumers, and a very uncertain investment environment” for its forecast. This, as Israel’s jobless rate surged to near 10 per cent  in October, the Central Bureau of Statistics said on Monday. This, after the outbreak of war with Palestinian Hamas militants led to tens of thousands of displaced citizens who had lived near the Gaza border. The main unemployment rate held steady at 3.4 per cent last month. [caption id=“attachment_13402222” align=“alignnone” width=“640”] Israel is spending $260 million per day on its war with Hamas.[/caption] But when taking into account what is expected to be a temporary loss of work, the rate reached 9.6 per cent in October as 428,400 people were jobless versus 163,600 in September, prior to the 7 October attack when Hamas gunmen rampaged though Israeli border towns. In the wake of the attack, nearly 400,000 Israelis were called up to reserve duty, and official data show that about 80,000 Israelis were placed on unpaid leave in the last few weeks. The employment rate in October dipped to 56.5 per cent from 61.1 per cent. The bureau noted that due to the war it needed to make changes to its labour force survey last month, with nearly no interviews taking place the week after the attack while all subsequent interviews were by phone rather not in person. It said that it did not survey from communities within seven km from the Gaza Strip and that the response rate of the survey fell to 55.3 per cent from 66.9 per cent in September. Israel’s low jobless rate had underpinned economic growth, but with so many people furloughed or out of a job, the economy is expected to contract in the fourth quarter and grow a less than expected 2.3 per cent in 2023. ‘Tough situation’ In a nation numbering only nine million, the reduction in the available labour force has had huge economic consequences. “The situation is tough right now, mainly because we’re missing hands,” said Zu-Aretz. “Many of our employees are still missing, some of them are recruited to the army.” Three days after Hamas’s October 7 attack, a missile crashed through the roof of Rav-Bariach’s factory “Some of them are still in different cities and they can’t come and work,” he said, estimating fewer than two-thirds of his 600 employees in Ashkelon were available. Over its 75 years of existence, Israel has regularly been at war with its neighbours. But “all Israeli-Arab conflicts in previous years were relatively minor compared to the war today”, according to economist Benjamin Bental of the Taub Center, an Israeli think-tank.

Some industries are worse affected than others.

“The construction sector is blocked,” Bental said, as it relied so heavily on Palestinian labourers with travel permits, which have now been cancelled due to the war. Dan Catarivas, a senior adviser at the Manufacturers’ Association of Israel, told Al-Monitor at least 130,000 Palestinians worked at construction sites the labour force. “Now the number has drastically fallen because both they don’t want to come and, on the other hand, some of the Israelis don’t want them to come. And basically, we have to find solutions for those 130,000 Palestinians from the West Bank who used to come to Israel,” Catarivas, a former director at the Israeli Ministry of Finance, added. Hospitality has also lagged as consumer confidence has slumped. Business is slow at bars and restaurants in major cities with tourists staying away. Overall, credit card transactions dropped 10 per cent after 7 October and then 20 per cent as Israel began its ground invasion of the densely populated Gaza Strip, according to economist Bental. The resilience of the tech industry, which makes up 18 per cent of GDP, will prove decisive. [caption id=“attachment_13401592” align=“alignnone” width=“640”] Many of Israel’s youth have been called up to serve in the armed forces.[/caption] “In Israel, only around 10 per cent of employees work in the high-tech sector but they are responsible for over 50 per cent of our exports," Dan Ben-David, a professor and the head of the Shoresh Institution for Socioeconomic Research in Tel Aviv University, told DW. “Because we are so dependent on the high-tech industry, which is both good and bad, we have put all our best eggs in one basket,” Ben-David added. Meanwhile, parents, especially those that work, are also impacted by schools not being completely open. Speaking to Al-Monitor, Toby Greene, visiting fellow at the Middle East Center at the London School of Economics, said, “Schools are only partially functioning due to teachers being in uniform and shortage of protected spaces in case of rockets, which also has a knock-on effect on parents.” DW quoted Ben-David as saying that given the number of people in the army, many spouses would have to skip work for the sake of their children. Some even speculate Israel will have to negotiate. As Amsterdam-based geopolitical analyst Cyril Widdershoven told Strat News Global, “This is because 360,000 military reservists (eight per cent of Israel’s workforce) are fighting in Gaza. Add the fact that ultra-Orthodox Jews do not work in Israel and you have the making of a crisis.” What do experts say? That life is basically on pause. “Much of Israeli society is on hold as a result of the war effort. And industries like tourism and agriculture have been especially hard hit, with few visitors traveling to Israel and an insufficient number of (guest) workers available to manage the crops,” Jonathan Panikoff, director of the Scowcroft Middle East Security Initiative at the Atlantic Council’s Middle East Program told Al-Monitor. Many economic institutes have slashed their growth forecasts for this year and next, though the Israeli central bank remains bullish, predicting a 2.8-per cent GDP boost in 2024. But Bental said there were “a lot of conditionals in the scenarios”. “If the situation worsens along the northern border, this is going to totally change the picture,” he added. Many economic institutes have slashed their growth forecasts for this year and next

“It’s very hard to assess what it might entail, except that it is going to be terrible.”

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With fighting ongoing in a war Prime Minister Benjamin Netanyahu has warned will be “long and difficult”, the combat is likely to suck up millions of shekels (dollars) of state spending. Last month, a group of 300 economists wrote to the premier with a warning: “You do not understand the magnitude of the crisis that Israel’s economy is facing.” Omer Moav, professor of economics at the University of Warwick, echoed this sentiment. Moav told Al-Monitor, “The Israeli economy has strong fundamentals, which implies it would be able to recover and repay the debt over the years, as long as the Israeli government, mainly the prime minister and minister of finance, lead the government in a responsible way. Unfortunately, this doesn’t seem to be the case.” How bad could things get? Experts say it is nigh-impossible to tell. “..the impact depends on a whole range of variables. How long will the war last? Will Hezbollah intervene in the war? And if the war continues, how long will we need the reservists?” Ben-David concluded. The problem is that this war is different from those that came before. “There have previously been several conflicts between Israel and Hamas in Gaza, but the current war is of significantly larger scale,” S&P analysts Maxim Rybnikov and Karen Vartapetov were quoted as saying by Times of Israel. “We currently assume the conflict will remain centered in Gaza and last no more than three to six months.” By then, who knows what shape Israel’s economy will be in. With inputs from agencies