Bank of Israel puts conflict 'gross effect' on country at $53 billion

Israel’s central bank has presented its most detailed assessment to date regarding the economic implications of the conflict with Hamas in the Gaza Strip. As the bank prioritises stabilising markets, it has refrained from implementing interest-rate cuts. According to the updated outlook from the bank’s research department, the “gross effect” of the conflict on Israel is estimated at 198 billion shekels ($53 billion). More than half of this total is attributed to defence expenditure. This figure surpasses the previous estimate of 180 billion shekels for 2023-2024 provided by Leader Capital Markets. The Finance Ministry said that the conflict is costing the economy nearly $270 million every day. Earlier this week, the Calcalist financial newspaper reported on Sunday that the country’s war with Hamas will cost as much as 200 billion shekels ($51 billion), citing preliminary Finance Ministry figures. The daily said the estimate, equal to 10% of gross domestic product, was premised on the war lasting between eight to 12 months; on it being limited to Gaza, without full participation by Lebanon’s Hezbollah, Iran or Yemen; and on some 350,000 Israelis drafted as military reservists returning to work soon. Calcalist described the ministry as deeming 200 billion shekels an “optimistic” estimate. But the ministry said it does not stand by Calcalist’s data. Hamas gunmen from Gaza launched the deadliest attack on Israel’s civilians in the country’s history on Oct. 7 and Israel has since bombarded Gaza with the goal of eliminating the group. Calcalist said half of the cost would be in defence expenses that amount to some 1 billion shekels a day. Another 40-60 billion shekels would come from a loss of revenue, 17-20 billion for compensation for businesses and 10-20 billion shekels for rehabilitation. Finance Minister Bezalel Smotrich has previously said Israel’s government was preparing an economic aid package for those impacted by Palestinian attacks that will be “bigger and broader” than during the COVID-19 pandemic. On Thursday, Prime Minister Benjamin Netanyahu said the state was committed to helping everyone affected. “My directive is clear: Open the taps and channel funds to whoever needs them,” he said without giving figures. “Just like we did during COVID. In the past decade, we have built here a very strong economy and even if the war exacts economic prices from us, as it is doing, we will pay them without hesitation.” In the wake of the war, S&P cut its outlook for Israel’s rating to “negative”, while Moody’s and Fitch put Israel’s ratings on review for possible downgrade. With inputs from Reuters.