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(Bloomberg) — From small restaurants to high-tech to a primary fuel box run by Chevron Corp. , Israeli businesses are being shaken by the war against Hamas.
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Many compare the lockdowns that affected a $520 billion economy to the Covid-19 pandemic, with schools, offices and structures emptying or opening only a few hours a day. Israel mobilized a record 350,000 reservists ahead of its ground offensive in Gaza, depleting about 8 of its staff.
Calls from the army and the partial freezing of the economy led to a sudden collapse of activity and everything from banking to agriculture. They charge the government the equivalent of $2. 5 billion a month, according to Mizrahi-Tefahot, one of Israel’s most sensible lenders. The central bank warned that the impact would worsen as the conflict dragged on.
Israel declared war on Hamas, which the U. S. and EU consider terrorist, when it looted communities in the south on Oct. 7, killing about 1,400 people. Thousands of Palestinians have been killed in retaliatory airstrikes in Gaza, the Hamas-ruled Mediterranean. enclave.
The monetary cost is already high. Israeli stocks have been the worst performer globally since the fighting began. Tel Aviv’s main index is down 15% in dollar terms, equivalent to about $25 billion.
The shekel has fallen to its lowest point since 2012 – despite the central bank announcing an unprecedented $45 billion bailout package – and is heading for its worst annual performance in a century. The cost of hedging against additional losses has skyrocketed.
For Naama Zedakihu, owner of two restaurants in Modi’in, a city between Jerusalem and Tel Aviv, the crisis has led her to temporarily lay off her 70 employees.
“I tried to open the restaurants for the first time after two and a half weeks, but they’re empty, so I’m going to close early,” he said on Oct. 24. “Deliveries are not enough to sustain the business. “
The geographic scope and duration of the shock will determine the extent of its long-term economic impact. Prime Minister Benjamin Netanyahu warned Saturday of a “long and difficult” military crusade as Israel began its long-awaited incursion into the Gaza Strip.
JPMorgan Chase
Israel’s recent conflicts — which were joined by one in 2006 with Lebanon-based Hezbollah and another with Hamas in 2014 that lasted about seven weeks and included an attack on Gaza — “have slightly affected activity,” JPMorgan analysts said Oct. 27. It has had a much greater impact on national security and confidence.
Proven Resiliency
The initial disruptions were so severe that, according to one survey, only 12% of Israeli brands were in full-scale production after two weeks of war. Most cited scarcity as their main problem.
The war will test Israel’s resilience to its limits. The government has said its budget deficits could more than double this year and compared with previous forecasts.
Israel has limited indoor cadres and gatherings to another 50 people in much of the country. And when skirmishes began with Hezbollah, another Iranian-backed militant group, on Israel’s northern border, many villages and towns in the domain were evacuated. There and in communities around Gaza to the south, more than 120,000 Israelis have been forced to flee their homes.
Household spending has plummeted, causing a primary surprise in the customer sector, which accounts for about a share of gross domestic product.
Private income fell by about a third in the days following the outbreak of the war, to an average week in 2023, according to payment system exchange Shva. Spending on activities such as recreation and entertainment plummeted by as much as 70%. .
By one measure, the decline in credit card purchases has been more disastrous than what Israel experienced at the height of the pandemic in 2020, for Tel Aviv-based Bank Leumi.
“Entire industries and their subsidiaries can’t work,” said Roee Cohen, president of a small business federation. “Most employers have already had to give their staff unpaid leave, affecting thousands of workers. “
Technological boom
Israel has entered its worst armed conflict in 50 years with an economy fueled by generation exports and offshore natural fuel discoveries over the past two decades. GDP per capita reached almost $55,000, surpassing that of the United Kingdom, France and Germany.
This wealth enriched the government’s finances and led to years and years of surpluses in existing accounts. This allowed the central bank to raise about $200 billion in reserves, about seven times more than in 2008.
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Some of that luster began to fade this year when plans through Netanyahu’s coalition (the highest right in Israel’s history) to weaken the strength of the judiciary sparked large protests and deterred foreign investment.
Now, as war plans and security dominate the government’s agenda, pressure for economic aid is mounting. Finance Minister Bezalel Smotrich has promised a bigger stimulus than the one set in motion by the coronavirus pandemic.
But lawmakers and business owners have criticized the package — first set at NIS 4. 5 billion ($1. 1 billion) by October and likely more than triple that by later — as insufficient. at least NIS 27 billion, according to Bank Hapoalim, or 1. 5% of Israel’s GDP.
Israel’s central bank downgraded its economic outlook on Oct. 23 but still forecasts an expansion above 2% this year and next, provided the shock is contained. “The Israeli economy is in shape and has demonstrated wonderful sustainability,” said Asher Blass, a former leading economist. at the Bank of Israel.
Construction Issues
A snapshot of the real estate sector offers a more alarming glimpse of what could happen.
Although some construction sites are reopening, many employees are missing. The industry relies heavily on the 80,000 Palestinians living in the West Bank, an area under security blockade since mid-September and where unrest has increased since the start of the Israeli war. air strikes and a near-total blockade of Gaza.
Manufacturers’ finances were already under pressure due to emerging interest rates since the beginning of last year. Many companies would possibly find it even more difficult to meet their obligations. This is a worrisome prospect for banks, whose structural sector accounts for about a portion of their advertising lending.
Military Call
A halt in structure and real estate, which contributes 6% to Israel’s tax revenues, will reduce government revenues and could lead to a further rise in prices in an asset market that has been among the most expensive in Europe and the Middle East. in recent years.
As the economy gets on a war footing, worker departures are also provoking tech companies.
About 15% of Israel’s tech workforce has been called to work on hold, estimates Avi Hasson, executive leader of Startup Nation Central, a nonprofit that tracks the sector. Those numbers are even higher at startups, which tend to employ more young workers, he said.
Lior Wayn, chief executive of Mica, an artificial intelligence company that specializes in analyzing mammograms, said he was looking to keep operations as general as possible after several workers were affected by the attacks.
“Two cousins of one of our workers were kidnapped in Gaza,” he said. “Another worker has been on standby duty for almost three weeks. My co-founder is in Cyprus because they don’t have a good enough bomb shelter at home. .
Delayed investment
Of the 500 high-tech corporations surveyed last week, nearly a fraction reported canceling or delaying an investment deal. Of those surveyed, adding up local and multinational corporations, more than 70% said that primary projects were being postponed or abandoned.
Although corporations say they must adapt, the fate of many of them suggests that the crisis will leave lasting scars on Israel’s economy.
This truth is obvious to Yiftah Dekel, CEO of Gvaram Industries, a materials manufacturer founded in 1979.
Dekel, who lives on a kibbutz just 10 kilometers north of Gaza, said less than a quarter of his 65 workers come to work. The domain has been isolated and orders for its products are running out, he said.
“The most serious question” is whether the territory near Gaza has a future, he said. “We’ve endured endless attacks and military operations, but this is like nothing else. “
–With Marissa Newman and Kerim Karakaya.
(Updates with the most recent market movements. )
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