"If Operation Pillar of Cloud ends in the next day or two, it will be possible to cope with its economic and budget consequences, a top Ministry of Finance official told "Globes" today. He reiterated that the economic turning point would be a ground operation in Gaza. "If there is a prolonged ground incursion, such as in Operation Cast Lead, it will be a different story," said another official.
Top Ministry of Finance officials are mainly worried out the macroeconomic and budget damage of the campaign; in other words, its effect on economic growth and the budget deficit. The officials warned that the campaign would harm GDP and growth in the short term. They said that the campaign would affect productivity, due to the call up of IDF reservists, who will miss workdays, as well as closed enterprises.
The Ministry of Finance estimates that the fighting in the south will reduce GDP, affecting the economy and the deficit. The 2006 Second Lebanon War reduced Israel's GDP by 1.2 percentage points, or NIS 10 billion.
The Ministry of Finance says that the opening conditions of Operation Pillar of Cloud were not as good as the conditions before the Second Lebanon War. Then, Israel's growth rate was almost 6%, after two years of rapid growth. Now, the growth rate has been slowing for at least a year, and is currently 2.9%. A second difference is fiscal: the deficit was 1% of GDP in 2006 (NIS 7 billion); the deficit forecast for 2012 is over 4% of GDP (NIS 40 billion). In 2008, before Operation Cast Lead, the deficit was 2% of GDP (NIS 15-16 billion).
Despite the expected burden on the state budget and the possible consequences on tax revenues, the Ministry of Finance does not believe that the campaign will result in a rating downgrade. The ministry also notes that the capital market has not reacted negatively to the campaign. "This is a forward-looking sign. Meanwhile, we are not seeing serious responses."
Published by Globes [online], Israel business news - www.globes-online.com - on November 19, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012