‘There is no work’: war with Hamas hits Israel’s economy

Guy Beit-Or, chief economist at Psagot Investment House, says the fallout could be worse than Israel’s month-long confrontation with Hezbollah in 2006 – one of its biggest recent wars – and that economic output could contract by as much as 2 or 3 per cent between the third and fourth quarters.

“We are ahead of a long operation, and it will take a serious toll on the Israeli economy,” he says. “People are cancelling holidays, parties, events. People are staying at home. The kids are at home, so lots of people can’t work.” Schools across Israel have switched to remote learning.

In the services sector, the strains are acute. In a normal week, Nina Mizrahi, a taxi driver from northern Israel, completes 20 to 40 journeys a day. In the past week, she has averaged one. “There is no work,” she says. “I really don’t know how small businesses are going to [keep going].”

Tourism has also suffered, just as the traditional October-December high season begins. Ganit Peleg, chairman of the Israel Tour Guides Association, says some tours up to two years from now have been cancelled, amid fears that a retaliatory invasion of Gaza could spiral into a regional conflagration.

“We have been receiving cancellations on a daily basis,” she says, adding that the collapse in business is reminiscent of what happened during the pandemic. “We just recovered from COVID. And here we are again.”

In the areas of southern Israel around Gaza that bore the brunt of Hamas’ assault, the signs of economic pain are everywhere. Before the war, Sderot was a town of 30,000 people. By this week, it was a ghost town: more than 90 per cent of its population has been evacuated, rows of shops are shut, and traffic lights at intersections blink permanently orange.

As the likely scale of the impact has become clearer, demands for government help have grown. On Thursday, Finance Minister Bezalel Smotrich announced a plan to help businesses whose revenues have been hit to cover their fixed costs, and financial assistance for workers unable to get to work. The central bank has stepped in, announcing last week it would sell up to $US30 billion ($47 billion) of dollar reserves to shore up the shekel.

Smotrich said that as a result of the aid plans, the government’s deficit could rise to 3.5 per cent this year, more than the 1.1 per cent it had previously targeted. Economists are predicting a much bigger shortfall next year.

But Rafi Gozlan, chief economist at IBI Investment House, says that with the ratio of debt to national output at a lower level of about 60 per cent and the central bank sitting on about $US200 billion of foreign exchange reserves, Israel is going to war on a better footing than in previous conflicts.

“This time is quite different. It allows both the Bank of Israel and the government to finance the necessary budget deficit that’s going to increase quite sharply,” he says. “We are going to see quite [some] damage to activity, but it has to do with the length and the depth of the military operation.”

Although Israel has fought numerous wars in its 75-year history, its economy has always bounced back. Erel Margalit, founder of venture capital firm Jerusalem Venture Partners, says that although investors have been asking many questions about the conflict, deals are still being done in the powerhouse tech sector, which is robust enough to cope.

“We built the high-tech industry during security challenges,” he says.

Jon Medved, chief executive of OurCrowd, a crowdfunded investment vehicle based in Jerusalem, also expects the economy to bounce back. “What’s bizarre is how normal it’s become,” he says. “People realise that there is risk everywhere. It’s just a matter of mitigating it.”

Even amid the turmoil, some workers in the high-tech sector are returning to work. “People will have to go – as crazy as what I’m about to say is – [back] to some normality,” says Ariel Cohen, chief executive of corporate spending start-up Navan. “To get back to working is actually really important. Someone will need to pay for this war.”

Welfeld, however, is more wary. For now, he is taking things day by day. “I’m hoping that next week we might get back [and open some of our restaurants] with a skeleton crew and see what happens,” he says. “But it’s complicated. It’s really complicated. Because I have a feeling that this little show that we’re in – it’s going to go on for a while.”

Financial Times