The economy of Israel is faltering as the country’s war with Hamas stretches into its 11th month, with no end in sight, according to AP.
Israel’s Prime Minister Benjamin Netanyahu insists the economic damage is temporary, but the ongoing conflict has severely impacted businesses. Experts now urge a ceasefire to halt any further economic decline.
Tourism, a vital sector for many small businesses, has been particularly hard-hit. Many iconic locations, like Jerusalem’s Old City, are nearly deserted, with souvenir shops closed and hotels half empty. The once robust tourism sector is now on life support. The American Colony Hotel in Jerusalem, an industry symbol, has laid off workers and is considering pay cuts due to the severe downturn.
A flea market and ports in the city of Haifa are similarly affected, with many merchants struggling to stay afloat as import-export activities decline due to regional instability.
The war has led to the closure of 46,000 businesses, 75% of them small businesses, according to Israeli business information company “CofaceBDI.”
Economists warn the war’s prolonged nature could lead to lasting economic damage. Yacov Sheinin, an Israeli economist, estimates the total cost of the war could reach 120 Bln dollars, about 20% of Israel’s GDP.
The international community is also reacting to the situation. Major airlines, including “Delta” and “Lufthansa,” have suspended flights to Israel, further hurting the economy.
Credit agencies like “Fitch,” S&P, and “Moody’s” have downgraded Israel’s rating, citing the prolonged conflict and potential for further escalation. This downgrade could increase the government’s borrowing costs, adding further strain to the economy.
The Israeli economy, once a model of entrepreneurial dynamism, faces unprecedented challenges. The country’s GDP growth is projected to be just 1.5% in 2024 if the war ends this year, down from an expected 3%. The budget deficit has also ballooned to over 8% of GDP, compared to a projected 6.6% for 2024.
Ports, a critical part of Israel’s trade infrastructure, have seen a 16% drop in shipping, disrupting import-export activities.
This decline is partly due to fears of attacks by Houthi rebels on ships passing through the Suez Canal, affecting global shipping routes.
Israel’s former central bank chief, Karnit Flug, now vice president of research at the think tank Israel Democracy Institute, highlights the uncertainty surrounding the war’s duration and potential escalation, which is weighing heavily on the economy.