War with Hamas hurts Israel’s economy

(Tel Aviv) At 6:45 a.m. on October 7, Jack Bigio, founder of technology company UBQ Materials, received a call from his COO: terrorists were attacking his kibbutz. Other employees texted him to say they were holed up in secure rooms. An employee told him that her husband had been shot in the stomach.

“It was like the Last Judgment,” Mr. Bigio said.

The Hamas attack forced UBQ Materials to close its factory, 30 km from the Gaza Strip. Its employees are in a state of shock: two of them have died, many have lost their homes and been relocated 160 km away.

Founded in 2012, UBQ uses technology that transforms household waste into a imitation plastic used to make tables, chairs, McDonald’s trays and Mercedes-Benz car parts. The business was able to open after three weeks, but many others still face operating and financing problems.

Hard blow for techno

Around 23,000 Palestinians have been killed by Israel since October 7, according to the Gaza Health Ministry, which does not distinguish between civilian and combatant deaths. About a million residents of the north of the territory have fled to the south. The Gaza Strip suffered massive destruction: famine, cutoff of water, electricity and communications networks, limited medical care due to the damage suffered by many hospitals.

In Israel, the Hamas attacks of October 7 left 1,200 dead and hundreds of hostages, more than 100 of whom are still detained in Gaza, according to Israeli authorities. The war disrupted the lives of much of the population, with 350,000 reservists mobilized and 200,000 people displaced from the northern and southern border areas.

The war also hit the Israeli economy. Tourism has virtually stopped and public spending has increased.

The blow to tech firms has shaken confidence in a key sector of the Israeli economy.

The mobilization of reservists disrupted the activities of many companies. Many customers have suspended or canceled orders altogether, and investors are cautious, according to a survey carried out by the Israel Innovation Authority and the Start-Up Nation Policy Institute.

Israel’s technology sector has been growing strongly over the past 10 years and accounts for nearly half of all the country’s exports and a fifth of its economic output, according to the Israel Innovation Authority.

“Temporary slowdown, but pronounced”

According to the Organization for Economic Cooperation and Development, the war will cause a “temporary but pronounced slowdown” in the Israeli economy. It had grown by around 3% before the October 7 attacks, but is expected to reach only 1.5% in 2024. Labor shortages, inflation and falling consumer and business confidence are weighing on the economy.

There is also concern about foreign investment, which was already low before October 7 due to the uncertainty caused by the conflict between the right-wing government of Prime Minister Benjamin Netanyahu and the Supreme Court of Israel, notes Jonathan Katz, former economic forecaster at the Israeli Ministry of Finance.

To stimulate the economy, the Bank of Israel cut its rate by a quarter point, to 4.5%, last week, the first cut since the start of the pandemic, and central bank governor Amir Yaron, announced further reductions.

Economic uncertainty

Yaron said the economy is already adapting to wartime conditions and showing signs of recovery, but the repercussions of prolonged hostilities would be significant.

He also underlines the importance of stability and curbing the increase in public spending, which contributes to increasing debt and deficits. It is clear “that the current economic uncertainty is closely linked to the security situation and the evolution of the war,” adds Mr. Yaron.

Israel has acted to ease uncertainty, including by stabilizing the national currency, the shekel. The government plans to increase the number of foreign workers allowed into the country from 50,000 to 70,000, to address a sudden labor shortage. Foreign workers have fled and more than 100,000 Palestinians from the West Bank have been barred from working in Israel.

The army has also recently withdrawn thousands of soldiers from the Gaza Strip, at least temporarily, in part because of the cost of this massive deployment of reservists.

Mr. Yaron still lectured Mr. Netanyahu on his budgetary priorities when it is necessary to spend more on defense and for urgent needs such as making the localities located near the borders of Gaza and Lebanon habitable after the attacks by Hamas and the Hezbollah. The Netanyahu government’s funding of West Bank settlements and the ultra-Orthodox has come under even greater criticism since the start of the war.

“Failing to adjust the budget now by cutting spending, cutting redundant ministries and increasing revenue to meet war needs risks costing the economy much more in the future,” Yaron said. . The Israel Innovation Authority has US$100 million in public funds to support technology companies, particularly start-ups that have lost funding.

In an encouraging sign, semiconductor giant Intel last month confirmed its planned investment of US$25 billion to expand a chip factory in southern Israel (Israeli government provides US$3.2 billion subsidy) .

“All our entrepreneurs understand that even though our customers abroad support us and empathize with us, if we cannot meet our commitments, they will have to go elsewhere,” said Dror Bin, director general of the Authority. ‘innovation.

Shortly after the start of the war, this organization launched a campaign intended to strengthen confidence in the Israeli tech sector, despite the war. The slogan: “Israeli techno keeps its promises. WHATEVER HAPPENS. »

This article was published in the New York Times.