The war in Gaza and its severe effects on Israel's economy

He Consumption and investment in fixed capital goods They are the most affected areas.

The decision of the approver is appended to the above Moody's Credit Agency It downgraded the country's credit rating in early February, citing political and financial risks, citing the fragility of its institutions due to the war in Gaza.

It was the first time Moody's downgraded Israel, a severe blow to the country's international image as investors use the tool to gauge the risk of investing in a global company or government.

The credit agency's decision was questioned by Israeli authorities.

Chief Minister Benjamin Netanyahu He noted that his country's economy was “strong” and that the rating had “nothing to do with the economy, but entirely because we are at war.”

“The moment we win the war the rating will go back up and we will win it,” the president added.

BBC Mundo tried to contact Israeli government officials to get an official version of the economic situation, but did not receive a response.

War broke out between Israel and Hamas on October 7, when the radical Islamist group launched an unprecedented offensive against Israel, withdrawing 1,200 muertos. After this, an Israeli military campaign began on Gaza, killing it Over 30,000 people.

Despite a sharp fall in GDP between October and December, the economy Israel 2% growth Throughout 2023.

However, before the October 7 attack, it was expected to grow by 3.5%.

Thus, considering the current war situation, some analysts have warned what could happen in 2024.

Liam BeachAn emerging markets economist at Capital Economics said the country's growth prospects this year are “likely to record one of the weakest rates on record”.

According to published data Israel Central Bureau of Statistics, The decline in GDP was mainly driven by recession Internal consumptionIt has decreased 26.9%.

According to Eran Yashiv, Professor of Economics at Tel Aviv University and Fellow of the Center for Macroeconomics at the London School of Economics (LSE) People lost faith during the war.

“People tend to spend less money on routine consumption; They save more. During a crisis like this it doesn't buy durable goods, for example, cars, furniture or appliances,” he tells BBC Mundo.

Also, the Central Bureau of Statistics said that the decline in GDP will occur at a time About 250,000 men were called up to fight in the war. abandoning their workplaces and businesses.

“Millions of people are unemployed and unable to contribute to the country's production,” explains Joseph Comajuncosa Ferrer, professor of economics at the Esade Institute, to BBC Mundo.

It caused Lack of manpower.

“Israel's labor market has undergone many changes since the outbreak of the conflict with Hamas. As many people, especially the youth, have joined the army, the places are suffering from shortage of manpower,” says Yashiv.

“To this must be added the displaced people in the north, along the border with Lebanon, and in the south and in the Gaza Strip. Many of them have lost their jobs, at least temporarily, and cannot continue working where they are,” he adds.

Also, many Palestinian workers no longer travel to Israel.

“In peacetime, many Palestinians from the West Bank come into Israel to work. Now, for security reasons, There are many restrictions. Therefore, work activity decreases,” says Joseph Comajuncosa Ferrer.

In a report published by the Israeli think tank Dub Center, according to information from various official agencies, around one in October 2023 20% workers He was temporarily away from his job.

However, this number has been decreasing as the months have passed since the start of the war.

According to data from the Central Bureau of Statistics, investment in fixed capital goods is one of the areas most affected by the war. with a fall of 67.8% in the fourth quarter.

In this, there has been a sharp decline in residential investment, such as buying houses or apartments, which has intensified the crisis. estateAccording to experts.

“Why is investment falling? Because there is huge uncertainty. “No one is interested in buying a house during wartime,” explains the academician.

The situation worsens considering that labor shortage is also affected area of construction.

“The real estate market is going through a major crisis. Sellers and buyers, construction companies, merchants and banks are among the many people who are affected by mortgage loans. It is a very important sector of the economy,” says Eran Yashiv.

This is a matter of concern for experts in the future.

Amir Yaron, governor of the Bank of Israel, assured that the factors were “supply constraints in the construction sector and the need for alternative housing for those forced to leave their homes.” It will affect the evolution of the real estate market in the future.

Yaron also mentioned other concerns that Israel has today in the economic sphere.

He said he was at war with the nations inflammation Still over the target range.”

He also warned about employment.

“Due to the war, the overall unemployment rate, which includes laid-off workers, has risen,” he said.

However, Israel's economy has shown some good signs so far this year.

For example, the country's central bank has promised Credit card purchases, It declined significantly in the first weeks of the war and has since recovered.

With this, it can be inferred that consumption is showing some signs of improvement.

Something similar is happening in the labor market, where some reservationists are able to return to their jobs.

For now, it is one of the biggest concerns in the Israeli business sector Technical areaIt is a strong engine for the growth of its economy (and accounts for 17% of GDP).

Eran Yashiv explains that in 2023, compared to 2022, the fundraising of tech companies has decreased significantly.

For some analysts, the war may continue to intensify that trend.

“If Israel is at war this year and next year or in geopolitical turmoil, I doubt it Many foreign investors will abandon Israel and encourage tech companies to leave the country” notes Eran Yashiv.

“If that happens, the economy will be in trouble and become very weak,” he added.

Joseph Comajuncosa Ferrer agrees.

“The technology sector requires the movement of people and capital because investors can get in and out easily and quickly. And both things can be controlled by war,” he says.

Even so, the Bank of Israel insists its economy is worth $500 billion “strong enough” Until now, overcome the traces left by the war.

“The high level of the Bank of Israel's foreign exchange reserves, which were around $200 billion just before the war, gives us room to maneuver to maintain the stability of the economy while reducing uncertainty,” Governor Amir Yaron said.

Eran Yashiv insists, however, that everything will depend on what happens in the coming months.

“If the war ends now, in the long run, I don't think the suffering of the economy will be considered too deep. But if it continues or escalates to other fronts, the damage could be enormous,” he says.

Academic Joseph Comajuncosa Ferrer warns that “if the conflict continues, it will be very difficult for Israel to maintain the functioning of its economy.”

“Companies seeing deteriorating performance of public sector enterprises will need more help”He assures.

However, Benjamin Netanyahu's government is determined to continue the assault on Gaza, regardless of the economic cost.

This was stated by the Minister of Economy and Industry. Nir Bargat, while specifically referring to the potential risk of a large trade deficit.

“We are determined to win the war. We are going to win the war no matter what,” he said in a statement to the Reuters news agency on February 26.

“When people look at Israel's economy, I think they have to make sure, first of all, that we are a safe country,” he concluded.