As of: February 29, 2024, 9:48 a.m
By: Lars-Eric Nievelstein
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The war in the Gaza Strip continues.
Israel's economy is stalling.
Economists still see an advantage – namely in the technology.
Jerusalem - More than four months ago, the terrorist organization Hamas attacked Israeli land, causing an escalation in the long-simmering conflict.
According to the Israeli Minister of Economy, the war has already cost the country 50 billion US dollars, the equivalent of around 46.1 billion euros.
Minister Nir Barkat warned that the war was having an impact on the country's economy that Israel "cannot sustain in the medium term."
However, there is a ray of hope.
Israel at war – Technological advantage through the Gaza conflict?
The same war that is currently having a negative impact on Israel's economy - and indirectly on other economies around the world - should help restore economic growth after the conflict ends.
This is partly due to Israel's fresh war experience, which is intended to strengthen sales of military technology, said the Reuters news agency, citing Minister Barkat.
No ceasefire for Israel's economy – minister expects significant growth © IMAGO / UPI Photo
“You should know that Israel has often endured economic setbacks whenever it has been at war,” the minister said.
“But immediately afterwards there were always big upward swings in innovation.” The knowledge and experience that Israel is currently gaining is far behind other countries.
After the war, it is likely that the country will take a leadership role in next-generation warfare.
Barkat is a member of the Likud party of Benjamin Netanyahu, Israel's current prime minister, and could potentially succeed him.
Private consumption collapses due to war
Recent figures have shown that Israel's economy is suffering more from the war than expected.
Bloomberg analysts had expected an average decline of around ten percent.
However, according to the
BBC
, Israel's GDP fell 19 percent in the fourth quarter of 2023.
This was a “direct impact” of the outbreak of war on October 7th.
Private spending (minus 26.3 percent), exports (minus 18.3 percent) and investments in particular suffered declines.
The investment division collapsed by 67.8 percent.
This primarily affected residential buildings;
the construction sector suffered from a labor shortage.
The reasons for this were military call-ups and a reduction in manpower from the Gaza Strip and the West Bank.
On the other hand, government spending increased significantly.
On paper there was an increase of 88.1 percent.
The drivers were war spending and compensation payments for businesses and private households.
Despite the slump, Israel's economy grew by around two percent for the whole year.
However, the forecast was 3.5 percent - before the attack by Hamas.
One of the “weakest growth rates” of all time is imminent for 2024.
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Concern about inflation at Israel's central bank
The weakening economy recently caused the Israeli central bank to worry about accelerated inflation.
Instead of lowering the key interest rate, the bank's monetary policy committee left it at 4.5 percent, as it announced on Monday in Jerusalem.
It is currently focusing on “stabilizing markets and reducing uncertainty, alongside price stability and supporting economic activity.”
Economists were surprised by this, as a survey by Bloomberg showed.
Many had expected a 0.25 percentage point cut in the key interest rate as the economy slowed and inflation eased because of the war.
War winner USA
While economies around the world are under pressure from various effects of the two wars - in both Ukraine and Israel - the United States is benefiting.
According to figures from the Wall Street Journal,
industrial production in the defense sector (including space) has
grown by 17.5 percent since 2022.
The
WSJ
refers to an analysis by the US central bank Federal Reserve System.
On the one hand, this is due to European allies who are modernizing their inventories with expensive investments (which primarily benefits US companies such as Lockheed-Martin and Raytheon), and on the other hand, due to massive sums that the Pentagon allocates to the defense sector from the US budget.
In Germany, the arms industry is also slowly getting going, but the industry association BDSV warns that companies are lacking orders.
On October 7, 2023, armed Hamas terrorists launched a major attack on Israel; around 1,200 people died during the attack.
The terrorist organization also kidnapped more than 250 people without distinguishing between men, women and children.
Israel responded with a military campaign in which over 29,000 people have now died.