By Emre Gurkan Abay
MOSCOW (AA) - The Israeli economy continues to suffer because of persistent attacks on Palestine, as Tel Aviv suffers from falling demand, rising costs and labor shortages.
Israel has been attacking the Gaza Strip since October and killed around 30,000 civilians. Some reports suggest that the country has called up 350,000 civilians to join the army as reservists.
The cost of the call up of reserve troops, as well as lower employee productivity in some sectors, amounts to $630 million per week, according to a report published by the Bank of Israel in November.
It said the economic cost does not reflect the costs of reduced demand, shortages of Palestinian and foreign workers, and other items.
The cost is estimated to rise as Israel continues to expand attacks on Palestine and casualties by the Israeli military.
The Israeli government started imposing an embargo on Palestinian workers, though that decision caused a supply shock in the economy, Amir Yaron, governor of the Bank of Israel, told CNBC.
The monthly cost of the embargo on Palestinian employees could rise to $1 billion, as per the reports from the Israeli Finance Ministry, according to the media reports.
- Bank of Israel says costs to reach $70 billion
The Bank of Israel cut the shekel interest rate by 25 basis points to 4.5% for the first time since 2020, following difficulties experienced in the economy.
Yaron said the military and civilian cost of Israel's attacks on the Gaza Strip could reach $58 billion, which would be a burden on the budget, though the country should overcome it by reducing spending in secondary areas.
He added that since Oct. 7, the bank has made constant situation assessments on the effects of the attacks and markets, and said the negative effect is clearly great on the economy, though it varies by sector.
The bank raised its "war bill" estimates for 2023 - 2025 to $69 billion, almost two-thirds of which is to be used for defense spending.
- Indirect effects on economy increase, especially in tourism
As flights and reservations to Israel were being canceled at a significant rate due to safety concerns, the number of tourists fell 76% in October year-on-year, at 89,700 people, according to data from the Israel Central Bureau of Statistics.
it is difficult to measure the full effect on the mental health and well-being of Israelis due to the attacks, though this can affect productivity and economic activity, said analysts.
The Organization for Economic Cooperation and Development (OECD) also decreased the growth forecasts for the Israeli economy from 2.9% to 2.3% for 2023, and from 3.3% to 1.5% for 2024.
The economy could enter a recession due to the current situation, Israeli economics professor Joseph Zeira told Anadolu.
International credit rating agencies are also following up on the developments in the Israeli economy, as US-based Moody’s downgraded Israel’s credit rating of “A1” to “A2” last week, citing that the developments pose political risks for the country and weaken its executive and legislative institutions, as well as its fiscal strength for the foreseeable future.
- New issues may arise in Israeli economy
Israel’s prestige has declined as it is accused by millions worldwide of committing genocide in Gaza, which is expectedly having economic effects.
Boycotts or sanctions against Israeli companies, products and services could lead to job losses, reduction in revenues, hence significant drops in tax revenues.
As some countries reduce trade, cease shipping certain products to Israel and using their ports, the image of Israel as an international trading partner can be damaged and tainted.
Reactions of the Israeli public to the damage already done could lead to new domestic political issues, as well as more boycotts and sanctions.
The Iranian-backed Yemeni political organization, the Houthis, has attacked commercial vessels in the Red Sea linked to Israel. As a response, the US and the UK launched counterattacks, which could affect Israel’s trade in the region.
*Writing by Emir Yildirim in Istanbul