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Israel’s economy faces uncertainty amid Hamas conflict

Melnick index shows modest growth in September

According to the Melnick State of the Economy index, Israel’s business sector exhibited signs of growth in September, with a 0.2 percent increase. This is a key indicator of Israel’s economic performance, which reflects the changes in various components such as industrial production, commerce and services revenue, imports, and employment positions. The index had reported a modest 0.1 percent increase in August, mirroring the lukewarm growth experienced in July.

The components of the most recently published report detail noteworthy movement over the past few months. In August, the industrial production index demonstrated a significant increase of 5.5 percent, indicating a notable expansion in manufacturing and production activities. The revenue generated by businesses in the commerce and services sector also saw a noteworthy rise, with a 2.3 percent increase in the same month.

On the flip side, the import index experienced a decline of 2.2 percent in September, following a 1.9 percent decrease in August. This suggests a reduction in the volume of imported goods and materials into Israel during these periods. Additionally, the number of employment positions within the business sector showed a decrease of 0.6 percent in July, following a 0.3 percent decrease in June. This implies that there were fewer job opportunities available within businesses during these specific months, potentially contributing to employment challenges in the labor market.

Israel’s economy faces uncertainty amid Hamas conflict

Conflict with Hamas poses serious challenges for businesses

While the September results provided a glimmer of hope for Israel’s business sector, the sudden escalation of conflict resulting from Hamas’ attack on October 7 is poised to disrupt this fragile growth. The implications are significant, as the conflict has created a labor shortage, with businesses struggling to find available workers due to the IDF calling up over 300,000 reservists to active duty to support the war efforts.

Furthermore, heightened security concerns, increased uncertainty, and the diversion of resources to support the war effort all contribute to the challenging environment for businesses. As the conflict continues, business leaders will need to adapt to these unprecedented circumstances and implement strategies to mitigate the effects of the ongoing conflict on their operations and long-term growth prospects.

Business sector calls for government support and intervention

The business sector has expressed its concerns and demands to the government, urging it to provide financial assistance and policy measures to help them cope with the crisis. The Israel Chamber of Commerce has called for an immediate allocation of NIS 10 billion to support businesses affected by the conflict, especially small and medium-sized enterprises (SMEs) that are more vulnerable to shocks.

The chamber has also asked for an extension of tax deadlines, a postponement of regulatory changes, and a reduction of bureaucratic hurdles for businesses. Additionally, it has requested for a dialogue with the government to discuss ways to restore stability and confidence in the economy.

The Manufacturers Association of Israel has also appealed to the government to intervene and protect the industrial sector from potential damage caused by the conflict. The association has warned that prolonged hostilities could lead to disruptions in supply chains, production processes, exports, and investments. It has suggested that the government should provide compensation for losses incurred by businesses due to rocket attacks or operational difficulties, as well as incentives for maintaining employment levels and increasing productivity.

Outlook for Israel’s economy remains uncertain

The impact of the conflict with Hamas on Israel’s economy is still unclear, as it depends on several factors such as the duration and intensity of hostilities, the extent of damage and casualties, the response of international actors, and the prospects of reaching a ceasefire or a peace agreement. However, it is evident that the conflict poses a serious threat to Israel’s economic recovery and stability, which had already been hampered by the COVID-19 pandemic and its aftermath.

According to some estimates, the conflict could cost Israel up to NIS 15 billion in direct and indirect losses, equivalent to about 1 percent of its gross domestic product (GDP). This could result in lower growth rates, higher inflation, higher unemployment, lower consumer confidence, and lower foreign investment. Moreover, the conflict could also have long-term consequences for Israel’s economic development and competitiveness, as it could divert resources from innovation, education, infrastructure, and social welfare.

Therefore, it is imperative that Israel’s government and business sector work together to overcome this crisis and restore normalcy and prosperity to the economy.

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