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The Financial Times: On October 7th, a sudden Hamas attack led to a nationwide closure of Israeli bars and restaurants, along with the cancellation of hundreds of flights. This abrupt event mobilized around 360,000 individuals, leaving many businesses grappling with staff shortages.
Impact on Israeli Financial Markets
The ongoing conflict and geopolitical tensions have had a domino effect on Israel’s financial markets. The TA-35 blue-chip index witnessed a sharp 9% drop, and the Israeli shekel experienced a significant devaluation. Market analysts predict that this could be the beginning of a long-term standoff between the two sides.
GDP and Economic Forecasts
Guy Beit-Or, Chief Economist at Psagot Investment House, warns that Israel’s GDP is likely to contract by 2-3% in the upcoming third and fourth quarters. Sectors like services and tourism are already feeling the pinch, with Sderot, a city in southern Israel, almost entirely evacuated.
Government Interventions
Amidst growing concerns, Finance Minister Bezalel Smotrich unveiled a financial aid package to help businesses cover fixed costs and provide relief to workers who are unable to report for duty. Meanwhile, the central bank has intervened by selling up to $30 billion to stabilize the shekel’s exchange rate.
Budget Deficit Concerns
These actions, however, could balloon the budget deficit to 3.5% this year, well above the initially projected 1.1%. Rafi Gozlan, Chief Economist at IBI Investment House, notes that the debt-to-GDP ratio stands at 60%, while the central bank maintains about $200 billion in foreign exchange reserves. This indicates that Israel enters this conflict under more favorable economic conditions compared to the past.
The entire article can be read at the link https://www.ft.com/content/deb2c2cb-7796-4310-9112-8ef3abab809a
