Israel is facing an unprecedented economic crisis as a result of its ongoing war on the Gaza Strip for 106 days. The Central Bank of Israel has urged the government to take immediate steps to limit the decline in GDP. The decline is concentrated in the technology, agriculture, construction and tourism sectors, and the bank called for raising taxes to contain the costs of the war.
For more than 3 months, when Israel launched its aggression against the Gaza Strip, it has been experiencing an escalating crisis with scenes of the killing of its soldiers, the destruction of buildings, empty streets, and hotels devoid of tourists, sheltering hundreds of thousands of displaced Israelis from the northern and southern regions instead.
Scenes that weigh heavily on the Israeli authorities and the state, which is reeling between continuing the war on the Gaza Strip and the necessity of developing an economic plan to compensate for the magnitude of the unprecedented losses.
Expenditures and costs that the Israeli Ministry of Finance estimates indicate that they will exceed the level of $14 billion as the war continues until next February.
Features of the crisis
Despite Israeli Prime Minister Benjamin Netanyahu’s attempts to sell a narrative to his citizens and political allies that Israel’s economy is strong and stable; Disagreements are erupting in the Central Bank of Israel, reflecting the extent of the discrepancy between the reality of the financial market and the statements, as Central Bank Governor Amir Yaron calls on the Prime Minister to take measures to avoid entering into a severe economic crisis, including: imposing new taxes, or raising existing ones.
Technology sector
The manifestations of the severe economic crisis are clear in the most prominent economic sectors in the country, the most important of which is the technology sector, which constitutes 18.1% of Israel’s gross domestic product in 2022, becoming the largest contributor to the domestic product, according to data from the Israeli Innovation Authority, and the sector’s production has doubled to 290 billion shekels (78.6 billion shekels). Billion dollars) in the same year, from 126 billion shekels ($34.15 billion) in 2012.
According to the data, high-tech sector exports represented 48.3% of total Israeli exports in 2022, amounting to $71 billion, a growth of 107% compared to what was recorded in 2012, and 401,900 employees in Israel work in the sector, according to 2022 data.
Since the start of the war on Gaza and the decision to massively recruit reserve forces, technology companies have been devoid of workers and are facing an economic crisis. Investments in it decreased by 50% compared to last year.
Agriculture sector
As for the agricultural sector, the evacuation of the towns surrounding Gaza and those northern ones near Lebanon – the two regions are considered the food basket for Israel – did not only reflect the direct costs of the war; Rather, it caused huge losses in the agricultural sector, preventing the markets from supplying the majority of agricultural crops and food products.
The war on Gaza caused a loss of 75% of agricultural yields in the Gaza Strip and 80% of milk and egg production, in addition to leaving 29,000 workers in these agricultural lands.
Farmers in the settlements of the Gaza Strip and the Western Negev are facing direct and indirect damage, and they are joined by farmers whose fields and orchards are located in the Upper Galilee, close to the Lebanese border. The damage is compounded by the fact that many foreign workers have left Israel, and Palestinian workers are not allowed to enter it.
Data from the Israeli Central Bureau of Statistics show that farms in the Gaza Strip constitute 30% of the land allocated for growing vegetables in Israel.
The area surrounding the Gaza Strip is known as the “Israeli vegetable patch,” and it also contains poultry and livestock farms, in addition to fish farms.
The head of the Farmers Union, Amit Yifrach, was quoted as saying that the Gaza Strip produces:
75% of the vegetables consumed in Israel, 20% of the fruits, 6.5% of the milk, 70% of the tomato crop, 37% of the cultivation of carrots and cabbage, and 60% of the cultivation of potatoes.
Although only 9.5% of the orchards and orchards are located in the cover settlements, 59% of the country’s lemon orchards are located in the region, and about 30% of the orange orchards.
Construction sector
As for the construction sector, it is on the verge of collapse, according to the Israeli Contractors Union, for several reasons: Most notably: the absence of Palestinian labor since the start of the war.
The sector suffers from a shortage of about 140,000 workers in this sector, which is mainly due to the absence of Palestinian workers, whether from the West Bank or Gaza, which led to the closure of 50% of construction projects.
In the middle of this month, the Association of Contractors and Builders in Israel said that even before the war on the Gaza Strip, there was a permanent shortage of 40,000 workers to meet the needs of the construction industry, and currently, with the absence of 100,000 Palestinian workers, the industry now actually lacks more than 140,000 workers.
Until last October 7, the construction sector in Israel relied heavily on the Palestinian workforce with more than 100,000 workers. The number is divided into 75,000 Palestinians from the West Bank who hold permits to work in Israel, and 12,000 from the Gaza Strip, while about 15,000 other Palestinians were working without permits.
This represents about a third of the workforce in the entire sector, and with the outbreak of war, the entry of Palestinian workers into Israel stopped completely, leading to an immediate deficit of 100,000 workers, according to the association.
The association added that – at present – 50% of construction sites in the country are closed, due to the severe shortage of manpower, and the active ones are operating at 30% of their capacity.
As for foreign construction workers, before the war they were estimated at about 23 thousand, most of them from Moldova and China, including 3 thousand who left Israel with the outbreak of the war.
According to estimates by the Israeli Ministry of Finance, the construction sector is losing two billion and 400 thousand shekels per week ($644 million), and since the current situation is expected to continue in the coming months, 3% of the annual gross domestic product could be lost.
tourism sector
As for the tourism sector, it is not better off, as the war coincided with the holiday period, as losses included various regions and tourism sectors. It is expected that the Israeli tourism sector will continue its setback in 2024.
Tourism in Israel was witnessing an exceptional season in 2023, with significant growth rates and greater recovery, but the “Al-Aqsa Flood” operation launched by the Palestinian resistance, led by the Qassam Brigades, against the Israeli occupation on the seventh of last October, and the subsequent Israeli aggression on the Gaza Strip. It had a traumatic impact on Israeli tourism for the remainder of last year and the current year.
The tourism sector in Israel had recorded remarkable growth in 2023 before October 7, 2023, as the country received approximately 3.01 million tourists, which led to the injection of $4.85 billion into the Israeli economy. However, the sector suffered a setback at the end of the year, and the expectation that the number of tourists would rise to the level of 3.9 million for the year did not materialize, especially with most international companies stopping operating their flights to Israel.
As 2023 passes, the tourism sector in Israel faces a future fraught with challenges and uncertainties in the wake of the war.
Facing costs
To confront the costs of the war, the Israeli government specified in the 2024 budget an amount of 10% of the gross domestic product to finance the war for two months.
Between the reality presented by the data and the economic data that portend difficult days for Israel’s economy, American support emerges as a major factor in avoiding a disastrous future for Israel’s economy, which may be represented by:
- $3.8 billion worth of weapons and ammunition provided by America to Israel.
- An expected $14 billion is being discussed by the United States to provide aid to Israel.