Xinhua, Jerusalem :
In the past decade, Israel has launched seven major military campaigns in the Hamas-controlled Gaza Strip, as well as a war with the Lebanese Hezbollah.
And yet, up until this summer’s Gaza war, the high-tech-driven economy that Israel boasts shrugged off the impact of these conflicts and maintained miraculous growth rates, defeating even the global financial crisis. However, the era of rapid growth rates now seems to have reached its end, economists say.
The seven-week long war that started on July 7 had a detrimental effect on Israel’s economy. It hit tourism, dented industrial activity close to the border, and slowed down consumer spending as people were less inclined to leave home.
Economists currently estimate that the war will result in a 0.5 percent point drop in Israel’s growth rate, which in fact has already being declining before. Initial estimates by the Israel’s Central Bureau of Statistics showed that in the second quarter of 2014 growth was merely 1.7 percent, as opposed to 2.8 percent in the first quarter of 2014, and 2.5 percent in the last quarter of 2013.
“We are definitely entering a slower growth phase,” said Amir Ayal, chairman of Infinity, Israel’s largest private investment management group. “But we are still talking about a slowdown, not a recession,” he added.
Also Prof. Zvi Eckstein, dean of the School of Economics at the Interdisciplinary Center in Herzliya, expects that the slowdown will continue.
He explained that although the influence of the war is ” contained”, other factors will negatively impact growth. “These include low growth rates in Europe, which accounts for a third of Israel’s international trade, and the strong Israeli Shekel, which negatively affects Israel’s export. Unfortunately, the government does not initiate stimulus measures, such as productivity- increasing reforms, dramatic investments or improving its own efficiency,” he said.
Prime Minister Benjamin Netanyahu said that Israel had given Hamas “a heavy blow,” which according to the military included the destruction of 32 “terror tunnels,” air and ground strikes on 4, 762 sites across the Gaza Strip. The bill for this deadly attack, which claimed the lives of at least 2,100 Palestinians, mostly civilians, and 71 Israelis, is estimated at eight to ten billion shekels (about 2.2-2.8 billion U.S. dollar), according to the Ministry of Finance.
Two weeks ago, the government approved an across-the-board two percent cut (0.56 billion dollar), sparing only the Defense Ministry and Israel’s internal security service (the Shin Bet).
But the Bank of Israel claimed that this is not enough, and that taxes should be increased in order to prevent a dramatic increase in Israel’s deficit. Israel’s central bank Governor Karnit Flug and Finance Minister Yair Lapid were engaged in a public dispute concerning the best strategies to handle the extra costs inflicted by the war.
Lapid had promised his middle-class constituency to prevent tax hikes even at the cost of having to step down, and instead he plans to raise the deficit target from the current 2.5 percent to 3.5 percent. But Flug said a deficit above the level of three percent “will clearly signal a stepping back from the commitment to maintain fiscal discipline, and increases the risk of losing credibility.”
Education and welfare will suffer most. The government decided to cut 63 million shekels (17.3 million dollars) in the Ministry of Welfare, although Welfare Minister Meir Cohen insisted that there is no surplus in his ministry. “From whom are we expected to take? Those who have nothing to put in their children’s school sandwiches?” he said in a statement.
The 4,564 rockets launched by Hamas militants at Israel caused no major damages but managed to deter tourists, causing a 26 percent drop in the number of tourists in July, in a year which was officially expected to be an all-time record year for Israeli tourism.
“2014 will clearly not be a record year,” said Rafi Beeri, vice president of marketing and sales at the Dan Hotels, Israel’s largest hotel chain. Dan Hotels estimates that even if tourism will see a “swift rebound” as Finance Minister Lapid said, the war will still cause a ten percent decline in its incomes this year.
In the past decade, Israel has launched seven major military campaigns in the Hamas-controlled Gaza Strip, as well as a war with the Lebanese Hezbollah.
And yet, up until this summer’s Gaza war, the high-tech-driven economy that Israel boasts shrugged off the impact of these conflicts and maintained miraculous growth rates, defeating even the global financial crisis. However, the era of rapid growth rates now seems to have reached its end, economists say.
The seven-week long war that started on July 7 had a detrimental effect on Israel’s economy. It hit tourism, dented industrial activity close to the border, and slowed down consumer spending as people were less inclined to leave home.
Economists currently estimate that the war will result in a 0.5 percent point drop in Israel’s growth rate, which in fact has already being declining before. Initial estimates by the Israel’s Central Bureau of Statistics showed that in the second quarter of 2014 growth was merely 1.7 percent, as opposed to 2.8 percent in the first quarter of 2014, and 2.5 percent in the last quarter of 2013.
“We are definitely entering a slower growth phase,” said Amir Ayal, chairman of Infinity, Israel’s largest private investment management group. “But we are still talking about a slowdown, not a recession,” he added.
Also Prof. Zvi Eckstein, dean of the School of Economics at the Interdisciplinary Center in Herzliya, expects that the slowdown will continue.
He explained that although the influence of the war is ” contained”, other factors will negatively impact growth. “These include low growth rates in Europe, which accounts for a third of Israel’s international trade, and the strong Israeli Shekel, which negatively affects Israel’s export. Unfortunately, the government does not initiate stimulus measures, such as productivity- increasing reforms, dramatic investments or improving its own efficiency,” he said.
Prime Minister Benjamin Netanyahu said that Israel had given Hamas “a heavy blow,” which according to the military included the destruction of 32 “terror tunnels,” air and ground strikes on 4, 762 sites across the Gaza Strip. The bill for this deadly attack, which claimed the lives of at least 2,100 Palestinians, mostly civilians, and 71 Israelis, is estimated at eight to ten billion shekels (about 2.2-2.8 billion U.S. dollar), according to the Ministry of Finance.
Two weeks ago, the government approved an across-the-board two percent cut (0.56 billion dollar), sparing only the Defense Ministry and Israel’s internal security service (the Shin Bet).
But the Bank of Israel claimed that this is not enough, and that taxes should be increased in order to prevent a dramatic increase in Israel’s deficit. Israel’s central bank Governor Karnit Flug and Finance Minister Yair Lapid were engaged in a public dispute concerning the best strategies to handle the extra costs inflicted by the war.
Lapid had promised his middle-class constituency to prevent tax hikes even at the cost of having to step down, and instead he plans to raise the deficit target from the current 2.5 percent to 3.5 percent. But Flug said a deficit above the level of three percent “will clearly signal a stepping back from the commitment to maintain fiscal discipline, and increases the risk of losing credibility.”
Education and welfare will suffer most. The government decided to cut 63 million shekels (17.3 million dollars) in the Ministry of Welfare, although Welfare Minister Meir Cohen insisted that there is no surplus in his ministry. “From whom are we expected to take? Those who have nothing to put in their children’s school sandwiches?” he said in a statement.
The 4,564 rockets launched by Hamas militants at Israel caused no major damages but managed to deter tourists, causing a 26 percent drop in the number of tourists in July, in a year which was officially expected to be an all-time record year for Israeli tourism.
“2014 will clearly not be a record year,” said Rafi Beeri, vice president of marketing and sales at the Dan Hotels, Israel’s largest hotel chain. Dan Hotels estimates that even if tourism will see a “swift rebound” as Finance Minister Lapid said, the war will still cause a ten percent decline in its incomes this year.
