Although the Israeli government has not yet published statistical data for the first quarter of 2224, there are reasons for relief: the latest labor market data reported by the Central Statistics Authority and the information published by the Bank of Israel on transactions with credit cards are reasonable. assume that the country's economy is recovering from the shock of October 7 and the military conflicts that followed.

In the fourth quarter of 2023, economic output fell significantly after the Hamas terrorist attacks: it fell by 5.2 percent compared to the third quarter. This was largely due to tension in the labor market when 300,000 reservists were called up.

Benjamin Bental, an economics professor at the University of Haifa, said the labor market was recovering from the impact of the economy losing so many workers and small business owners so suddenly. “In fact, the labor market is stabilizing quite quickly,” he told DW. “It has not yet returned to pre-war levels, but the unemployment rate is currently one percentage point lower than in September 2023.”

The return of many reservists from the troops would have eased the labor market situation and, at the same time, credit card data suggested that consumer optimism was returning after the big fall of 2023.

Difficult construction situation

However, according to Bental, some sectors are still suffering severely from labor shortages, particularly construction. Especially since this industry was heavily dependent on Palestinian workers. They had come to Israel from the occupied West Bank to work; This is no longer possible due to strict security measures.

Some 75,000 Palestinians moved daily between the West Bank and construction sites in Israel. Their absence has brought construction activity to a near standstill: Residential construction plummeted by 95 percent by the end of 2023. The industry has recovered somewhat as it has brought in thousands of workers from India, Sri Lanka and Uzbekistan. to complete your construction projects. The full picture will only be visible once all the first quarter data is available.

The budget deficit

The war forced the government to dramatically increase public spending, primarily for defense purposes but also for reconstruction measures after the terrorist attacks and new construction for tens of thousands of Israelis who were forced to flee the north and south of the country. country.

Last month, Israel announced a revised budget for this year that included 584 billion shekels, or about 144 billion euros. A national deficit of 6.6 percent of gross domestic product (GDP) was predicted for 2024, while 2.25 percent was originally expected.

Benjamin Bental, however, says that this is a significant understatement and that an eight percent deficit is much more likely. “That seems more or less realistic. As long as there are no more tensions in the security situation,” he adds, referring to tensions with Iran.

The state budget is clearly under pressure. The government plans to take on around €56 billion more in debt and increase taxes. According to the rulers, this is what the country could achieve: “The economic conditions are in place,” Yali Rothenberg, chief auditor of the Ministry of Finance, told the Financial Times before the publication of the supplementary budget. -Technological sector, in infrastructure measures and in private consumption, then you see: that is what the economy provides.”

Is defense becoming too expensive?

Before the Hamas attacks in October, the Israeli economy was in good shape. “The economy was doing remarkably well,” Bental said. “Inflation fell and the fiscal situation was completely under control.” He notes that Israel was targeting 3.5 percent growth before the raid and that despite the shocks, the country was able to achieve two percent growth in the last quarter of 2023.

Bental says there is little evidence of a war economy or signs of austerity or shortages on the streets of major cities like Tel Aviv and Haifa. This shows that the experiences of previous wars and crises and their effects on the economy influence the actions of the current government.

However, Bental is concerned about extraordinary defense spending. During the Yom Kippur War in 1973, the state dramatically increased defense spending, to a “totally unsustainable” level of 30 percent of gross domestic product (GDP). Together with the oil crisis and a general global economic crisis, the conflict led to a “real economic disaster” for Israel. This resulted in very high inflation and economic stagnation for almost ten years.

If only the fighting would stop

According to Bental, the Second Palestinian Intifada between 2000 and 2005 had more similarities with the current conflict because then, as now, more civilians were involved. “Something can be learned from this about the damage that results from the loss of trust among the population and the sense of personal security during this period,” says Bental. “It is estimated that during these years of conflict, Israel's GDP lost around 10 percent as a result.”

As another example, he cites the conflict with Hezbollah and Lebanon in 2006, a conflict that shows how quickly the economy can recover when fighting stops. Bantal: “We are talking about a situation where nothing worked for about a month in northern Israel. But if you look at the data and look for traces of this episode, you will see that there is nothing to see. That's really surprising.” “The economy returned to normal in a short time.”

Bental hopes this will be the case again once the current conflict ends. At the moment, some signs of recovery point exactly in that direction.

This article is adapted from English.

Author: Arthur Sullivan