The Gaza war costs Israel $73 billion and inflicts huge losses on its economy

Israel – The war on Gaza caused severe damage to Israel’s economy, and inflicted huge financial losses on various economic and commercial sectors, markets and business branches, due to various economic measures and policies of Benjamin Netanyahu’s government during this war.

The war caused the evacuation of approximately 250,000 Israelis from their homes in the south and north – about 40% of whom have not returned to their homes until today, as they were housed in 438 hotels and evacuation facilities, which cost government ministries 6.4 billion shekels ($1.8 billion), according to data. Israeli Ministry of Welfare and Tourism.

Half a year after the war, the Israeli economy stands at a crossroads, with almost complete collapse and paralysis and huge losses in the construction and real estate sectors, industries, agriculture, and domestic tourism, with the continuing rise in the cost of the war and its repercussions on Israel’s general budget, which suffers a deficit of 6.6% of the gross domestic product. According to a report by the Bank of Israel.

From the point of view of economic affairs analyst at Calcalist newspaper Adrian Bilot, the Israeli government is acting recklessly and irresponsibly in everything related to war expenses and its repercussions on the Israeli economy.

Pilot pointed out that the Governor of the Bank of Israel, Professor Amir Yaron, is adopting policies to keep the interest rate in the economy unchanged at 4.5%, despite the slowdown in inflation, which has reached 2.5%, and is expected to reach 2.7% by the end of 2024.

The economic analyst believes that the composition of the worsening budget deficit, which has already reached 6.2% of the gross domestic product, and is expected to reach 6.6% by the end of 2024, shows that the jump in government spending is not only related to the war, but also to the government’s wrong economic policies.

Pilot explained that the Bank of Israel, due to the repercussions of the war on the Israeli economy, expects a rise in financial inflation, a worsening of the budget deficit for the year 2024 and the public debts of the government, which does not bother to involve the governor in its discussions and economic policies.

The economic analyst says, “The situation is much worse than it seemed, as the Governor of the Bank of Israel spoke a lot about the new risks of financial inflation, due to the development of the war and its impact on economic activity, the decline in the value of the shekel, and restrictions on activity in the labor market, especially in the construction and real estate sector.”

He pointed out that there is still a long way to go to achieve full recovery of the Israeli economy due to the war.

The Israeli economy is suffering from the repercussions of the need for the Israeli army to recruit hundreds of thousands of reserve soldiers, in addition to the evacuation of hundreds of thousands of Israelis from their homes in the “Gaza envelope” settlements, the western Negev, and the Lebanese border, and the disruption of work in schools and universities, and economic facilities, including tourism. Restaurants, cafes and entertainment places.

The economic blow was well felt at Ben Gurion Airport, in the period from October 2023 to March 2024, as about 38,500 international flights passed through it, compared to about 70,000 in the corresponding period from 2022/2023, according to the authority. Israeli crossings and airports.

With the outbreak of the war, dozens of international airlines suspended their operations in Israel, and canceled hundreds of daily flights to Ben Gurion Airport, where a sharp decline in traffic at the Israeli airport was noted, as the number of passengers reached about 4.3 million passengers since the beginning of the war, compared to about 10.1 million in October. October 2022 and March 2023.

With the declaration of a state of emergency following the “Al-Aqsa Flood” battle, the vast majority of economic facilities and small and medium-sized commercial interests in Israel witnessed a recession, as they diverted and employed all government resources and budgets for war purposes.

The Israeli economy was disrupted and suffered huge losses, as data from the Bank of Israel and the Israeli Ministry of Finance showed that the cost of the war from last October 7 until the end of March 2024 amounted to more than 270 billion shekels ($73 billion).

According to data from the Israeli Ministry of Security, the daily cost of the war from October 7 until the end of December 2023 amounted to one billion shekels per day ($270 million), before it decreased during the year 2024 to reach 350 million shekels ($94 million).

As a result of the economic repercussions and consequences of the war, the Israeli government was forced to expand the general budget for the year 2024, reaching 584 billion shekels ($158 billion), an increase of about 14% compared to the original spending limit that was set last year as part of the 2023-2024 budget.

To confront the high cost of the military operation and in order to prevent the cumulative deficit in the Ministry of Security’s general budget, the budgets allocated to the Ministry of Security were increased, adding 30 billion shekels ($8.1 billion), bringing the total size of the security budget during the war to about 100 billion shekels ($27 billion).

Due to military spending and direct losses to the Israeli economy, there was an increase in the state’s debt costs to reach 62% of the occupation’s GDP, after it was 59% in the year 2022/2023.

The size of the budget deficit as of the end of last March amounted to 6.2% of the gross domestic product, and the deficit is expected to continue growing to reach about 6.6% by the end of 2024, according to data from the Accountant General of the Israeli Ministry of Finance.

Since the beginning of this year, a cumulative deficit of 26 billion shekels ($7 billion) has been recorded in the general budget, noting that in the last 12 months this deficit reached a new record of 117.3 billion shekels ($31.7 billion), which is the highest in the country’s history.

Regarding the damage and losses resulting from the exposure of the Israeli home front to missile bombardment, estimates by the Israeli Tax Authority showed that the amount of direct damage to buildings and facilities incurred by the “Gaza Envelope” settlements amounted to 1.5 billion shekels ($405 million), according to data from the Israeli Tax Authority.

It is evident from the Tax Authority’s reports that the value of indirect damages and compensation for those affected in the settlements of the Cover and the Western Negev reached 12 billion shekels ($3.35 billion), which includes losses and damages incurred by branches of agriculture, domestic tourism, entertainment, restaurants and cafes, and light industries.

As for the damage and losses in the Upper and Western Galilee, the Israeli border towns with Lebanon, and the occupied Golan, there are no official data and an inventory of the damage by the tax authority, due to the seriousness of the conditions and the fighting with Hezbollah.

Estimates indicate that the size of the initial losses in the north of the country as a result of Hezbollah missiles is estimated at about two billion shekels ($540 million), as more than 500 residential, agricultural, industrial and commercial facilities were damaged, according to what the Yedioth Ahronoth newspaper reported, which does not rule out that the size of Losses and damages multiplied.

Data from the National Insurance Institute showed that 65,032 Israelis had compensation files opened for them by the institution, as a result of their injuries in so-called “war and hostilities,” where about 22 billion shekels ($6 billion) were transferred in compensation allocations for injured civilians, as well as 4.2 billion shekels were paid ( $1.1 billion), an additional increase in the cost of reserve service due to absence from the workplace.

Last March, the Israeli government spent 56.5 billion shekels, and since the beginning of the year expenditures amounted to 147 billion shekels ($39.7 billion), compared to only 106.5 billion ($28.7 billion) in the first quarter of 2023, which is a cumulative increase of 38.1%.

Estimates of war expenditures since the beginning of 2024 amounted to 27.6 billion shekels ($7.5 billion), with the cumulative increase in expenditures for the war specifically reaching 12.2%, according to data published by the Calcalist economic newspaper.

Construction and infrastructure work in Israel witnessed almost complete paralysis after the Israeli government froze work permits for about 80,000 Palestinian workers from the West Bank. The losses of the construction branch are estimated at about 150 million shekels per day ($40 million), while construction companies fear the fate of loans estimated at Half a trillion shekels, according to what Israeli Channel 12 reported.

The paralysis in the construction and real estate sector caused losses for banks and a decline in their profits, as the volume of real estate loans obtained by apartment buyers reached 71.3 billion shekels ($19.2 billion) in 2023, according to data from the Bank of Israel.

This represents a decrease of 39.6%, compared to the volume of new real estate loans granted in 2022, which amounted to 117.6 billion shekels ($32.7 billion).

The volume of real estate loans granted in 2023 is the lowest since 2019, when new real estate loans amounted to 67.7 billion shekels ($18.2 billion).