Israel faces dented economy as Gaza war ends

Xinhua reported:

- In the past decade, Israel has launched seven major military campaigns in the Hamas-controlled Gaza Strip, as well as a war with the Lebanese Hezbollah.

And yet, up until this summer's Gaza war, the high-tech-driven economy that Israel boasts shrugged off the impact of these conflicts and maintained miraculous growth rates, defeating even the global financial crisis. However, the era of rapid growth rates now seems to have reached its end, economists say.

The seven-week long war that started on July 7 had a detrimental effect on Israel's economy. It hit tourism, dented industrial activity close to the border, and slowed down consumer spending as people were less inclined to leave home.

Economists currently estimate that the war will result in a 0.5 percent point drop in Israel's growth rate, which in fact has already being declining before. Initial estimates by the Israel's Central Bureau of Statistics showed that in the second quarter of 2014 growth was merely 1.7 percent, as opposed to 2.8 percent in the first quarter of 2014, and 2.5 percent in the last quarter of 2013.

"We are definitely entering a slower growth phase," said Amir Ayal, chairman of Infinity, Israel's largest private investment management group. "But we are still talking about a slowdown, not a recession," he added.

Also Prof. Zvi Eckstein, dean of the School of Economics at the Interdisciplinary Center in Herzliya, expects that the slowdown will continue.

He explained that although the influence of the war is " contained", other factors will negatively impact growth. "These include low growth rates in Europe, which accounts for a third of Israel's international trade, and the strong Israeli Shekel, which negatively affects Israel's export. Unfortunately, the government does not initiate stimulus measures, such as productivity- increasing reforms, dramatic investments or improving its own efficiency," he said.

Two weeks ago, the Israeli government approved an across-the-board two percent cut (0.56 billion dollar), sparing only the 'Defense' Ministry and Israel's internal security service (the Shin Bet).

But the Bank of Israel claimed that this is not enough, and that taxes should be increased in order to prevent a dramatic increase in Israel's deficit.