Ongoing war could decrease the business sector’s production by 3.8% in Q4 - report

Recent findings indicate that Israel’s ongoing conflict with Hamas might have a substantial effect on the business sector's production, with a potential decrease of 3.8% projected for the year’s fourth quarter (Q4).

Published on Tuesday, the Melnick State of the Israeli Economy Index recorded a 0.7% decrease in October 2023, providing an early indication of the challenges faced by the business sector during the initial month of the conflict. It's crucial to note that these estimates are still tentative and may undergo revisions as additional data becomes available.

The decline in business sector activity can be attributed to multiple factors. A direct impact on production is evident, stemming from a reduction in the workforce due to employees being called into reserves, resulting in a diminished product supply. Furthermore, changes in consumer behavior, with people avoiding shopping centers, have led to reduced commerce and market activity, contributing to a decrease in demand. Additionally, a notable decline in tourist arrivals to the country has been observed.

What damage will businesses suffer due to the conflict?

An initial estimate in the report suggests that the ongoing conflict could potentially inflict a 3.8 percent damage on the business sector's product in the last quarter of 2023. Consequently, this would lower the growth rate of the business product to 1.9% for the entire year.

Breaking down the components of the October index, key indicators include a 4.0% decrease in the industrial production index in September, a 3.9% decrease in revenue in commerce and services, a 4.8% decrease in the import index in October, and a 0.7% increase in the number of employee posts in the business sector in August.

Recent days have seen several companies posting positive Q3 reports, suggesting an upward trajectory just before the outbreak of hostilities. This positive trend comes after a period of turbulence earlier in the year, largely attributed to the government's controversial and hurried judicial reform.

This report provides one of the first glimpses into the economic repercussions of the ongoing conflict. While these estimates are preliminary and based on limited data, they offer insight into the potential overall impact on the Israeli economy as the year concludes amid the continued conflict with Hamas. The situation remains dynamic, and further updates and analysis will be crucial for a comprehensive understanding of the economic landscape in the coming months.