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Israel’s economy surges ahead after suffering just 0.5% slowdown during Operation Protective Edge

By Mason White 3:54 PM September 1, 2014

By: Ze’ev Ben-Yechiel
In just several days, Israel’s economy began a sharp recovery after falling during Operation Protective Edge, the Tazpit News Agency reported.

Despite the numerous setbacks, the economy remains resilient.

Amid news of massive budget cuts needed to pay for the latest war and losses to the tourism and retail industries, statistics from many sources project a rapid economic recovery and continued growth for the world’s most vibrant small economy.

The war in Gaza has taken a significant economic toll on Israel, felt mainly by the tourism sector, which comprises about 7 percent of Israel’s economic activity.

Israel’s Ministry of Tourism reported that tourism for July dropped by 26 percent from the same period last year, representing a loss of at least $566 million.

Hardest-hit from the ongoing war are the businesses in the south of the country, where the majority of the Hamas rockets hit.

Stores and restaurants have suffered from a drop in sales, while manufacturing facilities close to the Gaza border have been impacted by slowdowns in production due to numerous rocket alerts.

Israel’s Manufacturers Association estimated that Israeli manufacturers lost out on 1.2 billion shekels ($1 = 3.58 shekels).

Dr. Adam Reuter, former senior officer at the Bank of Israel and the head of several investment firms, found that over the last 30 years Israel’s economy has enjoyed vigorous and sustained growth that continues to this day.

The recent war in Gaza, is not expected to inflict any lasting damage on economic performance, noted Yoram Ettinger, a former ambassador for Israel and a longtime consultant to the Israeli government.

In all three previous wars – the 2006 Lebanon War and the previous two operations in Gaza in 2009 and 2012 – the reaction of the economy has been one of brief downturn followed by rapid and complete recovery, “a ‘V’ and not ‎a ‘U’ shaped graph,” Ettinger wrote in a letter published last week.

The consultant noted that according to the Bank of Israel: “the 2006 war against ‎Hezbollah triggered an immediate drop for GDP from more than 6 percent to a ‎negative growth of 1.5 percent, followed by a swift recovery to almost 10 percent ‎growth in the following quarter.”

Operation Protective Edge is expected to lower Israel’s 2014 GDP by just 0.5%, but will likely have “insignificant influence on foreign investors, most of whom seek Israeli high-tech companies, which are minimally vulnerable to rocket and missile fire,” he added.

With the Israeli military’s emphasis on minimizing civilian casualties and its focus on defensive rather than offensive technologies, the economy may even receive an incidental benefit from the war: “The ‎expanded global interest in Israeli-developed and manufactured, battle-‎tested defense systems (e.g., Iron Dome, Trophy, etc.) – which ‎demonstrated their unique capabilities during the Gaza war – is expected to ‎bolster a quick recovery and the continued growth of Israel’s economy,” Ettinger explained.

Israel is currently the world’s top exporter of drones and the world’s co-leader ‎‎(along with the U.S.) in the development, manufacturing and launching of ‎small and medium-sized satellites.

It is the second-largest cyber exporter in the world, with sales three times larger than those of the United Kingdom. With the continued discovery and development of offshore natural gas reserves, Israel is also an emerging natural gas power.