The operation dubbed “Deluge of Al-Aqsa” and the subsequent war on the Gaza Strip has progressively shaken Israel’s economy into a sluggish state. Sectors have experienced near-paralysis, while others have continued at a minimal rate. There has been a blackout by official authorities regarding the results of the last quarter of 2023.
Economic Blow
The Israeli Ministry of Finance recently reported that Israel recorded a budget deficit of 4.2% of the GDP in 2023 compared to a surplus of 0.6% in 2022. This was attributed to increased government spending to fund the war. A previous estimate in November had expected the deficit to be 3.4%.
The ministry added that the registered deficit in December alone reached 33.8 billion shekels ($9 billion).
According to the Ministry, the deficit for the entire year amounted to $18.5 billion, while tax revenues fell by 8.4%.
Lawmakers passed the 2023 war budget in December, which amounted to approximately 30 billion shekels.
Ministers are set to vote today on a revised budget for 2024, which takes into account additional defense expenditures and war costs, expected to push the deficit to 6% this year.
The Governor of the Bank of Israel estimated the cost of the Gaza war at about 210 billion shekels ($56 billion) for defense and compensation for those displaced from their homes in the south due to Palestinian resistance operations, or in the north due to rockets targeting them from Lebanon.
JP Morgan Chase, an American bank, predicted in late October that the Israeli economy could shrink by 11% annually in the last three months of the year.
Interest Rate Cut
Economic repercussions of the war forced the Bank of Israel to cut interest rates by 0.25% to 4.5%, marking the first reduction since the onset of the COVID-19 pandemic in March 2020.
This cut followed 10 increases between April 2022 and May 2023, when the rate rose from a historic low of 0.1% to 4.75% as the Bank of Israel sought to restrain rising inflation.
Inflation in Israel peaked at 5.3% in January but fell to 3.3% in November.
The bank expects inflation to drop to 2.4% by the last quarter of 2024 and to 2% by the corresponding quarter of 2025, according to the Israeli economic newspaper “Globes.”
During the war’s fifth week, credit card purchases in Israel dropped by more than 20% compared to the weekly average for 2023.
In a related context, the Bank of Israel allowed an increase of up to 200,000 shekels ($55,500) in mortgage loan values to alleviate the crushing debts on families and facilitate the construction of safe rooms in old apartments following the Deluge of Al-Aqsa and the war on Gaza.
Agriculture in Crisis
“Mehadrin,” a leading agricultural investment company and a major source of citrus and other agricultural products in Israel, announced earlier this month a loss of more than 160 million shekels ($43.8 million) for the third quarter of 2023, amid expectations for further negative impacts due to the war on Gaza.
“Mehadrin,” in its report, warned of a “significant material impact on the agricultural sector in Israel in general, and on the Gaza border area and the north of the country in particular.”
The economic newspaper “Globes” quoted the head of the farmers’ union, Amit Yifrach, saying that 75% of vegetables consumed in Israel come from the Gaza envelope, in addition to 20% of the fruit, and 6.5% of the milk.
The area around the Gaza Strip is known as “Israel’s vegetable patch” and also includes poultry and livestock farms, as well as fish farms.
Since October 7, this area has been under attack by Palestinian resistance, causing a tightening of Israel’s food security.
Labor Market Difficulties
From the start of the war until the end of December, 191,666 people in Israel applied for unemployment benefits, while the military establishment summoned about 360,000 reserve soldiers, the largest call-up since the 1973 war.
According to data from the Israeli Central Bureau of Statistics, the unemployment rate in Israel rose to 9.6% in October after tens of thousands of Israelis were displaced from areas near the Gaza border. The number of unemployed individuals reached 428,400 compared to 163,600 in September before October 7.
The Israeli Ministry of Labor announced in early November that about 46,000 Israeli workers had been laid off since the outbreak of the war.
On December 17, Ben Gurion International Airport announced 600 employees would be put on unpaid leave, reducing the job functions of another 1,000 workers to 75% due to the financial crisis faced by the airport.
The Israeli Airports Authority indicated that Ben Gurion Airport has 4,600 employees, but following these decisions, only about 3,000 will remain, with the roles of approximately 1,000 reduced to part-time.
As a result of preventing more than 140,000 Palestinians from entering areas within the Green Line and the flight of workers of other nationalities, coupled with the call-up of more than 300,000 reserve soldiers, Israeli authorities estimated that there was an urgent need for more than 100,000 workers.
A representative from the Israeli Ministry of Finance warned in December of significant Israeli losses due to not allowing Palestinian workers to enter, estimated at 3 billion shekels ($830 million) per month.
To address the issue, a bilateral agreement between the governments of Israel and India was presented in the Knesset to bring in 40,000 Indian workers, with the agreement set to be implemented as soon as possible for the workers to arrive within weeks thereafter.
About 20% of Israelis have seen a significant drop in income since the beginning of the war until the end of the last month of the previous year, according to a report by the Israeli charity organization Latet concerned with food security.
Forty-five percent of Israelis who participated in a survey conducted by the organization in November are afraid of economic hardships due to the war, as reported by the newspaper Haaretz.
While the report from “Globes” mentioned that Israeli business owners are pressuring reserve soldiers to return to work.
The Tech Sector Was Not Spared
Preliminary data showed that Israeli startups in the high-tech sector raised $1.5 billion in the last quarter of 2023, a 15% decrease from the previous quarter and the lowest level in five years, signaling the impact of the war on Israel’s high-tech sector.
A report by Reuters, citing research from the Israeli Venture Capital Research Center IVC and LeumiTech, stated that fundraising for investments in startup technology declined by 15% in the fourth quarter (until December 26) compared to the third quarter.
Around 6,000 companies operate in the Israeli tech sector, which constitutes one of the most significant economic segments, accounting for 18% of the GDP, about half of the country’s exports, and 30% of tax revenues.
Advanced technology represents 12% of employment opportunities, over half of Israel’s exports, 25% of income tax revenues, and nearly a fifth of the total economic output.
In total, Israeli startups raised about $7 billion in 2023 compared to nearly $16 billion in 2022.
Blackout
Ahmed Al-Bahnsi, an expert on Israeli affairs, commented to Al Jazeera Net that Israel does not officially disclose economic data for the last quarter of the year, which began with the Deluge of Al-Aqsa operation.
He speculates that the Israeli economy will contract due to the decline in commercial activity, consumer demand, the uncertain investment environment, and rising security and military spending over the short, medium, and long terms.
Al-Bahnsi adds that this war has been the most expensive in Israel’s history to date, with costs possibly reaching $37 billion in the first quarter of 2024 alone.
He explained that Western support could temporarily sustain Israel but won’t last long, considering that the United States is heading into elections and President Joe Biden wants to calm the Middle East somewhat, so as not to impact his campaign and secure votes from the Muslim and Arab communities.
Al-Bahnsi pointed out that the Netanyahu government is now under scrutiny after consecutive criticisms of its performance during the war. This included statements by opposition leader Yair Lapid, accusing the finance minister of lying about the war’s cost being covered by the state budget, which then failed to cover these costs.
He noted the resignation of the Minister of Social Equality, Amichai Chikli, due to substantial cuts to his ministry’s allocations, saying that the minister, who is a member of the Likud party (Benjamin Netanyahu’s party), has begun to remove the political cover previously enjoyed by the Israeli Prime Minister. This blow is significant because of the minister’s membership in Likud, Netanyahu’s party, which was forced to cut the budgets of ministries with a civilian nature.
Threats
Al-Bahnsi also mentioned Israeli media reports indicating that Israeli ministers in civilian-oriented ministries receiving threats to reduce their expenditures by specific figures or face dismissal.
He confirmed that the current Israeli government is under pressure; it was passed by only a four-vote margin in the Knesset, and with Benny Gantz, leader of the Blue and White Party, joining, it now enjoys a substantial majority, but pressures are mounting on Gantz to resign from the ‘war government’, which would expose Netanyahu’s government and potentially lead to its resignation or dismissal by the Knesset.
There are growing signs that the war is nearing an end, contrary to military claims, most notably the discussion about “the day after” the war and the establishment of an accountability and investigation committee regarding Operation Deluge of Al-Aqsa.
Concluding his commentary, Al-Bahnsi said that the Israeli opposition is “sharpening its teeth,” and fissures are increasing, both within the right-wing coalition forming the government and even within the Likud party itself.
