by Steven Scheer and Ari Rabinovitch

JERUSALEM – A reduced workforce, incessant rocket attacks, fears linked to the Hamas attack which persist: the impact of the war against the militants of the Palestinian group on the Israeli economy will be out of all proportion to the shocks of recent decades.

Cranes dotting the skyline of ever-growing Tel Aviv remained idle for days after the capital shut down construction sites. They reopened this week with stricter safety guidelines, but slowing activity in this sector alone is costing the economy around 150 million shekels (35 million euros) per day, according to an industry report.

“This is not a hard blow only for entrepreneurs or industrialists,” says Raul Sarugo, president of the Association of Israeli Builders. “This is a blow to all Israeli households.”

Israel’s economy, worth nearly $500 billion and the most developed in the Middle East thanks to its strengths in the technology and tourism sectors, has performed well for most of the year 2023. Growth was on track to reach 3% this year, with low unemployment.

But the looming ground invasion of Gaza and the threat of regional conflict are weighing on consumer spending. Rating agencies have already warned that they could lower their assessment of the country’s creditworthiness.

Hundreds of thousands of reservists have been called in, leaving a gaping hole in the workforce and disrupting supply chains from seaports to supermarkets. The shekel collapsed.

The conflict has also interrupted the movement of thousands of Palestinian workers from Gaza to Israel, and reduced the flow from the West Bank.

The escalators and aisles of Jerusalem’s main shopping center remained empty for the first two weeks of the war, but customers are gradually returning.

“There was a drastic drop in attendance,” summarizes Netanel Shraga, manager of the Columbia sports clothing store.

HIGH TECHNOLOGY

Some of Netanel Shraga’s employees were called up for military service. Others are too afraid to come to work.

The hotels are half full with Israelis evacuated from the border areas, the rest of the rooms are practically empty. Factories continue to operate, even those near Gaza, but there are not always enough truck drivers to make regular deliveries.

Credit card purchases were down 12% over the past week compared to the same period a year ago, with significant declines in almost every spending category except supermarket purchases , which are progressing.

The high-tech industry, which has thrived during the COVID-19 pandemic, is also struggling, although it usually accounts for 18% of Israel’s GDP and half of its exports.

“Productivity decreases considerably, as daily work takes a back seat to existential concerns,” notes Barak Klein, CFO of financial technology company ThetaRay.

Twelve of ThetaRay’s 80 employees based in Israel are reservists and have been drafted, others have children who don’t go to school, and the fear of rocket fire remains omnipresent.

ThetaRay has set up daycare for its employees and relies on its overseas offices to shoulder part of the workload.

Erel Margalit, whose venture capital fund JVP is one of the most active in the country, said he jumps from one board meeting to the next to discuss the various business continuity plans .

“Investors need to be reassured,” he believes.

According to Dror Bin, director general of the state-funded Israel Innovation Authority (IIA), between 10 and 15 percent of the workforce in the high-tech sector has been called upon to serve.

“We have been in touch with hundreds of tech companies, especially early-stage companies,” Dror Bin said, adding that many of them were in the middle of a fundraising round and lacked funding. ‘money.

To help them, the IIA has set up a NIS 100 million fund to help 100 tech startups overcome the situation.

The Ministry of the Economy has created a crisis unit and launched a help number. So far, its database has connected at least 8,550 people with companies in difficulty. When a logistics center of a large supermarket chain was put to the test, 38 people were sent to provide night duty.

“EMOTIONAL CRISIS”

The government has promised not to cut other spending items to finance the war and compensate affected households and businesses, which will result in a larger budget deficit and an increase in debt.

Past conflicts may not shed much light on the evolution of the economy. In 2006, during a 34-day war against Hezbollah, a Lebanese group backed by Iran, gross domestic product fell by 0.5% due to falling exports and slowing manufacturing activity. , but a recovery quickly began.

What’s happening today is different, officials say.

The Israeli public is going through an “emotional crisis” whose effects are already being felt, said Leo Leiderman, senior economic adviser at Bank Hapoalim, one of the country’s largest banks.

“People are going to limit their consumer spending because of the uncertainty and the climate,” he said.

With consumer spending accounting for more than half of economic activity, the impacts could be significant.

“Israel has always recovered remarkably well from all the recent fighting,” said a senior official at the Israeli Finance Ministry. “It appears that this event is more dramatic, although it is still very early to know.”

On Monday, the Bank of Israel revised its economic growth estimates downward for 2023, reducing them from 3% to 2.3%, and from 3% to 2.8% for 2024, with the scenario of a conflict limited to the Gaza Strip. Governor Amir Yaron, who opposes rate cuts for the moment, nevertheless expects the economy to rebound.

“In the past, we were able to recover from difficult times and regain prosperity,” recalls Amir Yaron. “I have no doubt it will be the same this time.”

(Reporting by Steven Scheer and Ari Rabinovich, Corentin Chappron, editing by Kate Entringer)

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