Israel On Killing Spree In Gaza

[Magda Hassan]

Gaza War Less a Threat to Israel Economy Than Lebanon (Update2)
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By David Rosenberg


Dec. 30 (Bloomberg) -- Israel’s assault on Hamas in the Gaza Strip may be less of a threat to its economy than the war against Lebanon’s Hezbollah two years ago -- and might even give it a boost.
Hamas lacks the arsenal of rockets that Hezbollah possessed during that conflict, when a 34-day barrage shut down much of northern Israel, said [url=http://search.bloomberg.com/search?q=Jonathan+Katz&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1]Jonathan Katz, a Jerusalem-based economist at HSBC Holdings Plc. The idling of factories then caused gross domestic product to shrink.
This time around, an increase in defense spending may help shore up the economy, which the Bank of Israel warns could be engulfed by the global recession. Governor Stanley Fischer lowered the benchmark interest rate for the fifth time yesterday to a record 1.75 percent and has foreshadowed further cuts.
“If government expenses grow more than planned, that gives a boost to the economy and eases some of the impact of the slowdown,” said Ori Greenfeld, chief economist at Clal Finance Investment Management Ltd., Israel’s largest non-bank financial institution.
At the start of the 2006 Lebanon war, Israel’s economy was growing at more than a 5 percent annual pace and Fischer raised rates to stem inflation. Following the conflict, gross domestic product contracted 0.3 percent in the third quarter of that year.
Desert Area
The area of Israel that was pounded by rockets during the Lebanon war is home to Haifa, the third-largest city and biggest port, and is a major tourism destination. The territory adjacent to Hamas-run Gaza is mainly desert. Most of the rockets have hit empty areas, with only a handful reaching the cities of Ashkelon and Ashdod.
The government’s Israel Export Institute estimated the total value of exports from the area within rocket range from Gaza was $2.1 billion last year, or about 4 percent of the national total.
The military has approved the reopening of factories near Gaza as long as they have adequate protection against attacks, the Manufacturers Association trade group said in an e-mailed statement today. Ten percent of Ashkelon’s factory workers, or 600 people, failed to report to their jobs yesterday, it said.
“The concentration of missiles is smaller and limited to an area that isn’t a major economic center for Israel,” Katz said. “The economy is developed and broad enough to weather this.”
Casualty Toll
Four Israelis have been killed, compared with about 360 Palestinians since the air force began its campaign on Dec. 27. By comparison, about 170 Israelis were killed in the Lebanon conflict and 1,200 Lebanese.
The Tel Aviv Stock Exchange’s benchmark TA-25 Index rose as much as 1.2 percent today while the shekel strengthened as much as 2.5 percent against the dollar, its biggest gain in two weeks. It was trading at 3.7702 at 2:51 p.m. local time.
Even if fighting grows worse, the economy demonstrated its resilience in the wake of the Lebanon war, Benjamin Netanyahu, the opposition leader and former finance minister, said in an interview with Bloomberg News today.
“We built a very powerful economic engine in the years preceding the Lebanon war,” said Netanyahu, who is contending for the prime minister’s post in the elections. “We liberalized the economy, we dropped taxes, we opened the economy to competition.”
While the economy shrank after the fighting, it rebounded and growth for the year was 5.2 percent, about the same pace as the previous year and in the following 12 months.
The Finance Ministry has already drawn up measures to revive the economy, though their implementation has been delayed by political squabbling in advance of Feb. 10 elections. The Bank of Israel said yesterday that growth this quarter had come to a “standstill” and may have even contracted.
Government Spending
The government plans to increase spending on programs that aid small and medium-size businesses, while also pouring more money into bridges and roads that will triple the budget deficit to 4.5 percent of gross domestic product.
“Next year the deficit will be exceptionally large both because of lower tax revenue as the economy slows and because of higher expenses from the fighting,” said Avinoam Nahum, chief executive officer of Tel Aviv-based investment house Pele Global Holdings Ltd. He estimated that increased defense expenditure may boost the fiscal shortfall to 5 percent.
The risk to the economy will increase if the conflict widens or the militants begin firing large numbers of rockets that have longer ranges which may threaten key economic targets, such as the Intel Corp. plant in Kiryat Gat, the Israel Electric Corp. power plant in Ashkelon and the Ashdod port, Katz said.
The Bank of Israel, in a statement accompanying the rate cut, said it was concerned about the “geopolitical uncertainty” created by the fighting and said it had “the potential to impact negatively” on the economy.
To contact the reporter on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.net;
Last Updated: December 30, 2008 08:33 EST