Israel Facing Looming Economic Disaster

In an analysis of the economic repercussions of the war, the Israeli daily "Haaretz" states that the economy will be hit hard, as tourism will dry up, economic activity in the south will be paralyzed, defense spending will increase, and workers will be absent from their jobs because they are in the reserves.

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Israel's faltering economy, in the midst of conflict and political tensions following the passage of a new law in the country limiting some of the Supreme Court's powers, was not prepared for the October 7 war.

Economic analysts estimated the current budget losses at about 1.5% of GDP (at least 27 billion shekels, equivalent to $6.8 billion), which means an increase in the deficit of no less than 1.5% of GDP next year. This is the largest loss since the October 1973 war.

According to the same source, this will lead to an increase in the inflation rate and, as the conflict continues and widens in scope, it will lead to a near paralysis of activity and production, which will decrease the supply of goods from the ports and hurt local industry.

In addition, possible damage to basic infrastructure, especially natural gas, will lead to higher electricity prices. All of these factors, combined with military conflicts that hurt domestic consumption, especially in the service sector, will lead to an eventual contraction.

The tourism sector, which represents a large relative weight in the country's gross domestic product, is the most affected. It accounts for most of the jobs.

According to estimates, the losses suffered by the tourism services sector due to Operation Protective Edge in 2014 amounted to about 2 billion shekels, or approximately 0.2% of the annual gross domestic product, while the sector's losses will be higher due to the current war.