Ongoing conflict that began on October 7 severely impacts Israel's economy
Date
11/13/2024 6:50:44 AM
(MENAFN) The connection between economics and geopolitics is well established, and the ongoing conflict that began on October 7 has severely impacted Israel's economy. While the global Economy is seeing positive growth, Israel's economic outlook is currently in decline, weighed down by the heavy costs of defense spending, which are expected to persist for the foreseeable future.
In the aftermath of the COVID-19 pandemic, an economic upheaval occurred, with the disruption of supply and demand leading to a contraction. Once pandemic restrictions were lifted, inflation surged, reaching 10% in some economies. Israel, however, has seen inflation buck the global trend, steadily rising to nearly 4%, with signs suggesting that it may continue climbing.
One of the factors driving inflation is the competition for resources between the military and civilian sectors, pushing up prices in the civilian market. There has been a decline in the availability of goods and services, while the costs of imports, taxes, wages, and essential services are rising, which is contributing to a general increase in prices.
While many expect Israel to emerge victorious from the war, the aftermath of the conflict raises the question: will the end of the war lead to an inflationary spike similar to what followed the pandemic? According to the Central Bureau of Statistics, credit card spending remains moderate, signaling subdued consumer activity across various sectors, including private consumption and corporate purchasing.
The war has caused a contraction in demand for goods and services, which has led to a reduction in supply. However, once demand returns to normal, there may be upward pressure on prices. Early signs from the housing market and home loan activity suggest that there is pent-up demand waiting for greater certainty. Delays in major purchasing and investment decisions, driven by the ongoing conflict, may result in higher prices once the war subsides and the backlog of demand is released.
Although a potential surge in demand is expected, the limited supply could hinder the full recovery of the economy. This is particularly true in the housing sector, where construction projects have slowed down. Other sectors disrupted by the war are also experiencing shortages of products due to cautious import strategies and reduced stockpiling over the past year, as uncertainty about consumer behavior continues to impact the market.
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