There is no doubt that growth in Israel is in a state of free fall, and that the war it is waging against Gaza, like all wars, is very costly from an economic standpoint, and yet its economy has not been harmed, so how has it survived?
A question that the Orian 21 website tried to answer by relying on an assessment by political economist Colin Powers.
Starting from the numbers, Powers explained that Israel’s economy recorded a 21% decline in gross domestic product in the last quarter of 2023, which is double what the Central Bank expected, after October 7, pointing to the American Moody’s unprecedented decision to lower Israel’s rating. And the 5 largest commercial banks in it.
Colin Powers, a member of the Middle East and North Africa Program at the Noria Research Foundation, said this would particularly affect the technology industry, which employs one in seven Israelis, generates about half of the country’s exports, a fifth of its gross domestic product and more than a quarter of its income tax revenues. It is a performance that can only be maintained through access to foreign capital.
Low investment in technology
Since the end of 2022, investments in high technologies have continued to decline, reaching by the end of 2023, 20% compared to the already low numbers of the previous year, and the first data for 2024 show that flows have reached their lowest levels in 9 years.
Since the country’s growth model is linked to the technology sector, such results pose major problems, especially with the failure of Netanyahu’s plans to direct the economy towards the production of raw materials instead of this sector, which doubts its political loyalty, after the UAE companies ADNOC and British Petroleum stopped discussions related to the acquisition. On half of Israel’s natural gas production, for fear of Houthi missiles and political repercussions.
Operation “Iron Sword” – according to the Israeli name for the war on Gaza – costs the Israeli economy $269 million per day, according to the Ministry of Finance.
In addition, a study conducted by the American consulting company RAND indicated that the economic losses in the event of a limited, but long-term military campaign against the Palestinians would reach $400 billion over 10 years. Likewise, Operation “Iron Sword” – according to the Israeli name for the war on Gaza – It costs the economy $269 million per day, according to the Ministry of Finance.
Sources of resilience
Despite the headwinds, there is no good reason to believe that economic pressures will hasten the end of the war in the short and medium term – according to the author – and this is due to the size of Israeli financial markets and foreign currency reserves on the one hand, and to the state’s foreign relations and economy on the other hand.
The depth of Israel’s capital markets allows the ruling coalition to finance a large portion of its military projects domestically, and this year it will sell about 70% of the state’s $60 billion in bonds in local markets, keeping interest rates low and enabling the Finance Ministry to borrow a total of 16.7 billion euros without Incurring high repayment costs.
Colin Powers believes that Tel Aviv can resort to debt without suffering much financially, which gives the leaders a great deal of independence and to pursue the war, especially since the accumulation of foreign currency reserves over the past two decades had a similar protective effect, as the value of the reserves exceeded The Bank of Israel holds $200 billion at the beginning of 2024, which helps keep inflation low.
However, the military’s genocidal violence requires quantities of ammunition far in excess of what local manufacturers can currently produce, and without the constant flow of artillery shells, missiles, warheads, etc. from the United States and Germany, the current campaigns in Gaza and southern Lebanon would quickly end, as would Without the cloud provided by Google and Microsoft, and WhatsApp data from Meta, Israel’s plan for “mass assassinations” driven by artificial intelligence would quickly collapse, according to the author.
The second factor, and perhaps the most important factor in explaining the resilience of the Israeli economy in the medium term, is – according to the author – the strength of its foreign relations, as Tel Aviv receives support of all kinds, from financial flows to trade, to logistical support, without forgetting the reserve armies of the powers. workers, such as India’s promise to provide 50,000 to 100,000 workers to replace the Palestinians in the West Bank, which is enough for the genocide to continue.
In addition, there is a wide constellation of American public and private actors, currently supporting the state, the army, and the economy financially, as the annual grant provided by the US Foreign Military Financing Program covers $3.3 billion annually, or about 15% of defense spending, and the free line of credit of the US government will increase significantly in 2024.
The American private contributions do not stop there, despite the ongoing genocide, as Nvidia, the world leader in the production of chips and artificial intelligence, invested large sums in acquiring Israeli companies despite the decline in technological investments in general, and Intel also agreed to build a new semiconductor factory.
European Union
As evidenced by the participation of Deutsche Bank and BNP Paribas in the issuance of Eurobonds, Europe plays an important role, as the European Investment Bank, owned by member states, maintained its intention to inject $900 million into the Israeli economy, and the “Horizon Europe” program to finance research and innovation allowed… Nearly 100 grants have been awarded to Israeli companies and institutions, and the non-profit European Investment Council recently increased its investments in Israeli startups.
In addition, the continuous flow of Israeli exports to the European market played a major role in achieving a trade surplus for Israel of 5.1% in the last quarter of 2023, and the first published data for 2024 show that Europe continues to import Israeli products, according to the writer.
With China and India
Maintaining Tel Aviv’s covert and overt foreign relations with non-Western economies has strengthened the ability of its war economy to continue, despite its decline due to Houthi interventions that forced shipping companies to suspend direct trade.
In this regard, data reported by the Bank of Israel indicate that imports from China are still large, approaching $10 billion in the first quarter of 2024, and are one of the vital elements of the economy on a daily basis, despite the decline in Chinese investment due to the pressures that… Practiced by the United States on Tel Aviv.
The contribution of India, which imports large quantities of Israeli weapons and exports cheap labor to fill empty Palestinian jobs, is extremely important, and its goods transported to Israel via the Gulf and Jordan fill store shelves.
The researcher pointed out the importance of Turkey’s ambiguous relations – as he described them – with Israel, and said that they are unlikely to lead to an immediate tightening, even though the Ministry of Commerce in Ankara imposed a gradual ban on trade with Israel, due to the grace period it provides that allows companies to meet current orders through… Third countries.
Long term hope?
As for the long term, there are several elements that could work against this war economy – according to the author – including the tendency to withdraw the investments mentioned above, which government interventions may not succeed in reversing, in addition to the possibility of increasing taxes to replenish reserves, and the continuation of genocide. It will exacerbate social tensions in the coming months and years.
For all the myths surrounding “startup nation,” it turns out that the growth and productivity gains achieved over the past two decades have in fact been relatively small, with significant brain drain consequences.
Anyone who hopes to end this genocide can only advocate isolating the Israeli economy in all possible areas as the only way to achieve this goal. Until Israel’s strong foreign relations are weakened or severed, the engines of Israeli violence will continue to operate without delay. vibration, and it can only be prevented by disrupting the existing financial and commercial circles.
For Palestine, and especially for the Palestinians of Gaza, the time needed to achieve social dynamism within Israeli society – for the state’s ability to wage war from within – to erode – is very long.
Therefore, anyone who hopes to end this genocide can only call for the isolation of the Israeli economy in all possible areas as the only way to achieve this goal. Until strong Israeli foreign relations weaken or are severed, the engines of Israeli violence will continue to operate. Without any vibration, it can only be prevented by disrupting the existing financial and commercial circles.
