If you have been looking for a crumb of hope in these times, I recommend that you hold on to the thought that it is still too early to tell what effect the current outbreak of violence between Israel and the Palestinians will have on the economy. On the other hand, it would be as well to be aware that the Israeli economy was not in such great shape even before last week's events. For the time being, the real damage is being done both by developments in the global economy and by the lack of any local economic policy to deal with them.
The Israeli economy was slowing down significantly even before the current wave of violence. Questions were being raised about the fiscal performance of Minister of Finance Moshe Kahlon and Prime Minister Benjamin Netanyahu weeks ago, and grew louder after the release of the International Monetary Fund's report on the Israeli economy. The government's inability to articulate a growth strategy has been a given for years. But the statement that we are at the early stage of the violence and so it is still not possible to estimate how it will develop is no comfort for business owners in Jerusalem, especially in the center of the city, and in other places where violence between Jews and Arabs has broken out. Apart from stores reporting a meteoric rise in sales of pepper spray, there are stores that have been left without customers in the past few days. It's important to remember these things before anyone starts to quote national averages, or to judge the state of private consumption according to how crowded it is in Tel Aviv cafes.
The fact that it is hard to gauge the impact of the current wave of violence does not mean that it will not have an impact or that it can be ignored. The extent of the damage will be determined by the effect of a prolonged period of violence on private consumption and exports, and on the momentum of the overseas boycott initiatives against the Israeli economy. It is reasonable to suppose that Israel's tourism industry will once again be the first victim of the pictures on television screens around the world. The upshot is that there is already damage, and the Israeli economy is paying a price. At the moment it's still something limited, even incidental, but with considerable destructive potential.
Amid the uncertainty, one thing we can be sure of is that the Ministry of Defense and the IDF general staff will demand a budget supplement, and government ministers can always be relied on to promise that the government will take care of the welfare of the citizens, without having a clue how to do so.
In the end, the magnitude of the blow will be determined by how long it takes before things calm down. We have to hope that on that matter, unlike what is happening in the economic sphere, the government has a clear policy, or at least plans that go beyond speeches, press conferences, and the hunt for inciters. A prolonged violent battle with severe civilian casualties will indeed lead to substantial damage to the economy. Moreover, the damage is never equally shared. Traditional industry and retailing will suffer much more than high-tech and finance.
Published by Globes [online], Israel business news - www.globes-online.com - on October 12, 2015
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