Will the Gaza War Bankrupt Israel?

this video was brought to you by brilliant the effects of Israel's war in Gaza have reverberated around the world but new economic data has revealed the extent to which Israel's economy has been damaged plunging nearly 20% in the final quarter of last year and to add to the government's economic woes Israel last week was hit by its first ever credit downgrade complicating the government's plan to borrow near record levels to fund the war so in this video we're going to look at Israel's economy why it was already Under Pressure before the invasion of Gaza what the effect of the war has actually been and how it might F going [Music] forwards before we start if you haven't already please consider subscribing and ringing the bell to stay in the loop and be notified when we release new videos firstly then let's start with a bit of context on Israel's economy despite some hiccups Israel's economy is generally very strong now we made a video where we go into some detail on Israel's economic history so go and check that out if you want more detail but the tldr is despite suffering an economic crisis after declaring independence in 1948 and after the yapur war in 1973 since the 70s Israel's economy has grown rapidly with the help of us support and a booming Tech sector Israel now has one of the highest gdps per capita in the world and is widely considered to be the most developed country in the region however since last year even before the invasion of Gaza Israel's political chaos put its economy under strain prime minister Benjamin netanyahu's judicial reforms completely divided Israelis and the direction of Israeli politics shifting to the far right caused Israel's tech companies to shift operations abroad even before October 7th the shekele was one of the world's worst performing currencies in 2023 going from roughly three shekele per dollar to nearly four in the year to August after the attack though the shekele of course declined falling past four shekels to the dollar since then the shekele has recovered currently trading at 3.6 to the dollar however in bad news for Israel it was revealed early this week that the Israeli economy has still shrunk by nearly 20% in annualized terms in the final quarter of 2023 nearly double the forecast of a 10.5% slump that analysts have predicted at this agage we should point out the obvious the impact of the war on Israel's economy has been dwarfed by the impact in Gaza according to the World Bank amid the quote massive loss of life and catastrophic damage the Palestinian economy has experienced one of the largest shocks recorded in recent economic history with gaza's GDP plummeting by more than 80% while almost all economic activity and Gaza has ground to a halt anyway why is so much of the Israeli economy shrunk well firstly private spending dropped by a huge 26.3% as many businesses closed in the aftermath of October 7th amid security concerns and consumer confidence also collapsed amid the instability plus there has been a 67.8% slide in investment in fixed assets especially in residential buildings meanwhile government spending increased 88% in Q4 versus the previous period most's money is going towards defense expenditure subsidizing the wages of reservists or supporting the 200,000 Israelis evacuated from the Gaza border area or the northern border with Lebanon with Airlines terminating flights and international shipping avoiding the Red Sea Imports of goods and services fell by 42% while exports dropped 18% with the diamond trade particularly affected tourism has also dropped with the suspension of flights by Airlines and the warnings from foreign governments not to travel to the region the call up of 360,000 reservists depleting roughly 8% of the workforce has also obviously had a big impact on the economy and it's been forecast that around 30,000 small to mediumsized businesses in various sectors will suffer as a result the construction sector particularly reliant on Palestinians for its Workforce has also been devastated as after October 7th Israel quickly imposed a ban on nearly all Palestinian workers traveling into Israel for reference more than 150,000 Palestinian workers from the occupied West Bank used to enter Israel daily for work the withdrawing of Palestinian work permits and The Exodus of many other foreign workers has hit Israel's construction and agricultural sectors with serious labor shortages something that the Israeli government is hoping to fill with Indian migrant workers as a result of this shrinking economy and increased government spending Israel's budget deficit is set to rise from 2.25% to 6.6% of GDP adding the difficulty is the fact that insuring against a default on Israeli debts has spiked in the last couple of months too this led to a credit downgrade by Moody's one of the big three credit rating agencies which moved Israel down from A1 to A2 now A2 is still investment grade but this downgrade shows the strain that this war is putting on Israel's economy and was met with anger from the Israeli government which will come on to later as a result of this shift though borrowing costs are set to rise not dramatically but it will put a drag on the economy as the government ramps up on borrowing to fund its war in fact Israel actually received a double wavy this February as Moody also lowered Israel's debt Outlook to negative pointing to the potential for the conflict to spread to a northern front against Hezbollah in Lebanon however Israel still closed 2023 with a growing economy with GDP up 2% in 2023 from 2022 thanks to pre-war growth pushing the overall number up or orbe it a lower number than the original forecast 3.5% growth so there's obviously a lot more than just the macroeconomic figures behind Moody's downgrade there's obviously also the political risks arising from the war which will weaken Israel's fiscal strength namely the government's prolongation of the war and its rejection of international diplomatic proposals for dealing with the aftermath now this has really angered the Israeli government with the Finance Minister criticizing Moody's decision as a political Manifesto and Netanyahu arguing that the downgrade is based on theoretical situations not at all related to the economy he assured the public and investors that the credit rating will improve once we win the war finally Moody's decision was in part informed by what will become of the government after the conflict ends and that's far from Clear Moody's report says that Israel May face a period of elevated domestic political upheaval and renewed polarization When The War cabinet dissolves and that's an easy scenario to imagine they're already protests demanding early elections and Paul suggest Israelis consider themselves to have shifted right in their Valu since the October 7th attacks though in terms of voting intention it looks likely that Center to center right parties will surge while netanyahu's leud party falls back ultimately the Israeli economy has over the years proven its ability to recover from war and conflict but the main questions now are how quickly this war can come to an end with the Israeli government indicating it will continue for some time yet also will it remain contained in Gaza or for example will it spread North to Lebanon and and will post-war Israeli politics bring calm or unleash instability as Benjamin Netanyahu is finally forced to reckon with his deep unpopularity a lot of stuff in our videos can often seem pretty complicated especially when we dive deep into detailed data and economics but there's a fun and easy way for you to learn more about these topics which doesn't cost thousands of dollars a year or take years of studying that's because brilliant is the best way to learn math St dat science and computer science interactively and the fun thing is that it doesn't take long to learn either these complex topics are broken down into small and 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Channel: TLDR News Global

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Length: 9min 39sec (579 seconds)

Published: Sat Feb 24 2024