BOI halves estimate of Protective Edge economic damage

New report finds that tourism and private consumption are most effected by conflicts.

March 16, 2015 18:53
1 minute read.
Operation Protective Edge

IDF soldiers take part in Operation Protective Edge.. (photo credit: ANNA GOLIKOV)

Operation Protective Edge, the 50-day war between Israel and Hamas last summer, cost the Israeli economy almost half as much as originally thought, according to a Bank of Israel study released Monday.

Though early estimates put the damage to Israel's economic growth at .5%-.6% of GDP, the Bank's new estimate, from its forthcoming annual report, put the damage at .3% of GDP, around NIS 3.5 billion.

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In general, the sector most affected by conflict in Israel is tourism, which reduces the number of tourists from abroad, hotel stays, revenue in the restaurants, and Israeli airline revenues. These indicators drop sharply when a conflict begins, and don't fully recover for about a year after fighting ends, according to the study, which looked at the four conflicts that have broken out in Israel since 2006.

Activity does not recover immediately, and returns to its level of the period preceding the fighting only after about a year.

Protective Edge cost tourism exports NIS 2 billion in 2014, the report found.

Another area hit in conflicts was private consumption. When there's a war on, people are less inclined to go out and spend, especially on restaurants, and apparently less likely to leave home; fuel consumption fell during both Protective Edge and the 2006 Second Lebanon War.

Private consumption, which accounted for the remaining NIS 1.5 billion in lost economic output in Protective Edge, bounced back immediately following the end of the conflict.

On the supply side, the effects were far more muted, particularly in high-tech production.

"Overall, industrial production remained relatively stable during Protective Edge, and its negative impact on GDP was only marginal," the report said.

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