News / Economy

    Month of War Leaves Israel with Tricky Economic Outlook

    Demonstrators stand outside a store of Swedish fashion firm H&M during a protest against the Israeli offensive in Gaza, in Valencia, Spain, Aug. 7, 2014.
    Demonstrators stand outside a store of Swedish fashion firm H&M during a protest against the Israeli offensive in Gaza, in Valencia, Spain, Aug. 7, 2014.
    Reuters

    Israel's month-long war with Hamas in Gaza has added fuel to a Palestinian boycott movement and may damage investor sentiment towards Israel at the margins, even if the $250 billion hi-tech economy looks set to emerge largely unscathed.

    Analysts expect the war to have dented growth and cost several billion dollars - foreign tourism alone fell by 25 percent in July. But Israel has weathered such storms in the past and tends to rebound within a few months, with output expanding at around 3-4 percent a year in recent years.

    The additional concern this time is that unrest in the West Bank has become more frequent and intense, the threat of a resumption of war in Gaza - the fourth in eight years - is very real, and international criticism of Israel has been loud, particularly in Europe, fueling those who support a boycott.

    While none of those factors alone will hold Israel's economy below the water line, they have the potential to sour confidence, knocking the country off its steady path, which has helped it attract vast flows of foreign direct investment.

    “There was a slowdown in the economy even before the Gaza conflict because of falling internal demand, and exports were down,” said Luis Costa, Citibank's head of foreign exchange and interest rate policy for central Europe, Middle East and Africa.

    “The corporate sector is screaming for stimulus... There's more cautious international investor sentiment towards Israel.”

    At the same time the Palestinian-led BDS movement - for Boycott, Divestment and Sanctions - has ramped up its activities, calling for foreigners not to buy products made in West Bank settlements and pressuring artists to avoid Israel.

    Several EU countries have warned companies about doing business with Israeli firms based in or having links to settlements, and the European Union has put restrictions on the scientific research projects it will fund with Israel.

    Alex Joffe, a Middle East historian who tracks international action against Israel, predicts the Gaza conflict will fuel the nascent consumer and business backlash, citing recent steps taken by companies in Belgium and Britain, among others.

    “These moves, plus growing anti-semitic protests and attacks throughout Europe, Canada and the United States, suggest that when the fighting in Gaza stops, Israel will be targeted for economic boycotts, in international forums, and in other contexts like colleges and universities,” he wrote in a commentary last month.

    Defense spending

    From the point of view of the largest foreign investors, the BDS movement, founded in 2005, is not significant, at least not yet. It draws headlines and can damage sentiment at the margins, but Israel's broader economy, built on hi-tech innovation, pharmaceuticals and engineering, is largely unaffected.

    “The economy is not isolated from these things, but certain elements are, such as the hi-tech sector, and that's where the foreign direct investment is going,” said Paul Gamble, the director of sovereign ratings at Fitch, a credit ratings agency. “I'm comfortable that will continue.”

    Instead Fitch's concern is that the Gaza war reinforces the risk of Israel being drawn into repeated costly conflicts, driving up defense spending, blowing out the budget and raising red flags over the sustainability of government finances.

    “One of the things we are thinking about is the longer-term impact on defense spending,” said Gamble, who cautioned in a report last week the budget deficit was likely to be missed, largely because spending on defense will not now be trimmed.

    “We don't know if there's going to be a new status quo that's sustainable. From the point of view of international investors, you have to ask if ... you are going to see a conflict of this kind of magnitude every few years?”

    That uncertainty, when combined with falling domestic demand - the central bank unexpectedly cut interest rates last month to try to stimulate activity - and the marginal risks that the BDS movement carries, has the potential to darken the outlook.

    “We're not at the stage of BDS impairing investment in Israel - there's a pretty captive audience of investors willing to invest in Israeli pharma or hi-tech,” said Citibank's Costa.

    “But we are starting to see a bit of a division here on views on how Israel should be conducting itself.”

    The flipside is that if serious progress can be made in ongoing negotiations with Egypt and Hamas over Gaza, lowering the risk of another conflict, and more fruitful discussions with the Palestinian Authority over the West Bank take place as a result, many of the economic clouds could be dispersed.

    You May Like

    In Britain, The Sun Still Doesn’t Shine

    Invoking Spitfires and Merlin, Leave voters insist country can be great again, following surprising 'Brexit' vote last week

    Double Wave of Suicide Bombings Puts Lebanon, Refugees on Edge

    Following suicide bombings in Christian town of Al-Qaa, on Lebanon's northeast border with Syria, fears of further bombings have risen

    US Senators Warned on Zika After Failing to Pass Funding

    Zika threats and challenges, as well as issues of contraception and vaccines, spelled out as lawmakers point fingers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Slow Rebuilding Amid Boko Haram Destruction in Nigeria’s Northeasti
    X
    June 29, 2016 6:15 PM
    Military operations have chased Boko Haram out of towns and cities in Nigeria’s northeast since early last year. But it is only recently that people have begun returning to their homes in Adamawa state, near the border with Cameroon, to try to rebuild their lives. For VOA, Chris Stein traveled to the area and has this report.
    Video

    Video Slow Rebuilding Amid Boko Haram Destruction in Nigeria’s Northeast

    Military operations have chased Boko Haram out of towns and cities in Nigeria’s northeast since early last year. But it is only recently that people have begun returning to their homes in Adamawa state, near the border with Cameroon, to try to rebuild their lives. For VOA, Chris Stein traveled to the area and has this report.
    Video

    Video Clinton Leads Trump, But Many Voters Don't Like Either

    In the U.S. presidential race, most recent polls show Democrat Hillary Clinton with a steady lead over Republican Donald Trump as both presumptive party nominees prepare for their party conventions next month. Trump’s disapproval ratings have risen in some recent surveys, but Clinton also suffers from high negative ratings, suggesting both candidates have a lot of work to do to improve their images before the November election. VOA National correspondent Jim Malone has more from Washington.
    Video

    Video New US Ambassador to Somalia Faces Heavy Challenges

    The new U.S. envoy to Somalia, who was sworn into office Monday, will be the first American ambassador to that nation in 25 years. He will take up his post as Somalia faces a number of crucial issues, including insecurity, an upcoming election, and the potential closure of the Dadaab refugee camp in Kenya. VOA’s Jill Craig asked Somalis living in Kenya’s capital city Nairobi how they feel about the U.S. finally installing a new ambassador.
    Video

    Video At National Zoo, Captivating Animal Sculptures Illustrate Tragedy of Ocean Pollution

    The National Zoo in Washington, D.C., is home to about 1,800 animals, representing 300 species. But throughout the summer, visitors can also see other kinds of creatures there. They are larger-than-life animal sculptures that speak volumes about a global issue — the massive plastic pollution in our oceans. VOA's June Soh takes us to the zoo's special exhibit, called Washed Ashore: Art to Save the Sea.
    Video

    Video Baghdad Bikers Defy War with a Roar

    Baghdad is a city of contradictions. War is a constant. Explosions and kidnappings are part of daily life. But the Iraqi capital remains a thriving city, even if a little beat up. VOA's Sharon Behn reports on how some in Baghdad are defying the stereotype of a nation at war by pursuing a lifestyle known for its iconic symbols of rebellion: motorbikes, leather jackets and roaring engines.
    Video

    Video Melting Pot of Immigrants Working to Restore US Capitol Dome

    The American Iron Works company is one of the firms working to renovate the iconic U.S. Capitol Dome. The company employs immigrants of many different cultural and national backgrounds. VOA’s Arman Tarjimanyan has more.
    Video

    Video Testing Bamboo as Building Material

    For thousands of years various species of bamboo - one of the world's most versatile plants - have been used for diverse purposes ranging from food and medicine to textiles and construction. But its use on a large scale is hampered because it's not manufactured to specific standards but grown in the ground. A University of Pittsburgh professor is on track to changing that. VOA’s George Putic reports.
    Video

    Video Orphanage in Iraqi City Houses Kids Who Lost their Parents to Attacks by IS

    An orphanage in Iraqi Kurdistan has become home to scores of Yazidi children who lost their parents after Islamic State militants took over Sinjar in Iraq’s Nineveh Province in 2014. Iraqi Kurdish forces backed by the U.S. airstrikes have since recaptured Sinjar but the need for the care provided by the orphanage continues. VOA’s Kawa Omar filed this report narrated by Rob Raffaele.
    Video

    Video Re-Opening Old Wounds in a Bullet-Riddled Cultural Landmark

    A cultural landmark before Lebanon’s civil war transformed it into a nest of snipers, Beirut’s ‘Yellow House’ is once again set to play a crucial role in the city.  Built in a neo-Ottoman style in the 1920s, in September it is set to be re-opened as a ‘memory museum’ - its bullet-riddled walls and bunkered positions overlooking the city’s notorious ‘Green Line’ maintained for posterity. John Owens reports from Beirut.
    Video

    Video Brexit Resounds in US Presidential Contest

    Britain’s decision to leave the European Union is resounding in America’s presidential race. As VOA’s Michael Bowman reports, Republican presumptive nominee Donald Trump sees Britain’s move as an affirmation of his campaign’s core messages, while Democrat Hillary Clinton sees the episode as further evidence that Trump is unfit to be president.
    Video

    Video NASA Juno Spacecraft, Nearing Jupiter, to Shed Light on Gas Giant

    After a five-year journey, the spacecraft Juno is nearing its destination, the giant planet Jupiter, where it will enter orbit and start sending data back July 4th. As Mike O'Sullivan reports from Pasadena, California, the craft will pierce the veil of Jupiter's dense cloud cover to reveal its mysteries.
    Video

    Video Orlando Shooting Changes Debate on Gun Control

    It’s been nearly two weeks since the largest mass shooting ever in the United States. Despite public calls for tighter gun control laws, Congress is at an impasse. Democratic lawmakers resorted to a 1960s civil rights tactic to portray their frustration. VOA’s Carolyn Presutti explains how the Orlando, Florida shooting is changing the debate.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9017
    JPY
    USD
    102.66
    GBP
    USD
    0.7443
    CAD
    USD
    1.2990
    INR
    USD
    67.600

    Rates may not be current.