Israel Consumption Dips in Gaza Conflict, Recovery Seen on Track
Israeli consumer demand slumped during the recent conflict with the Hamas-ruled Gaza Strip by about the same order as during the country’s last coronavirus lockdown, according to a senior central bank official.
But what worries the central bank more is the potential fallout from the communal violence that spread in mixed Jewish and Arab cities while the fighting raged, Eyal Argov, head of the macroeconomic activity unit at the Bank of Israel’s research department, said in an interview.
Credit card purchases dropped 15% during the 11 days the country was under rocket fire from Gaza militants, Argov said. Still, the “there was a relatively low macro hit,” in large part due to remote working, especially in cities close to Gaza, home to about 12% of the labor force, he said.
Israel’s economy largely bounced back quickly from its previous three conflicts in Gaza, and economists anticipate history to repeat itself this year.
The central bank is already seeing the “first signs” of a recovery in private consumption after the sides agreed to a cease-fire, Argov said. The shekel has strengthened over the past week to trade near a multi-decade high against the dollar, and the benchmark stock index climbed to the highest in 15 months.
“We have lots of experience with military escalation and the economy is very flexible and recovers quite fast,” said Rafi Gozlan, chief economist for Israel Brokerage and Investments Ltd. “Markets normally ignore these events and those who panicked in past ended up losing out.”
The Arab-Jewish violence could prove to have a more profound effect because if relations aren’t repaired, that could slow the integration of Arab Israelis into the work force, especially in high-growth industries like technology that are centered outside Arab towns, Argov said.
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