Clal Finance investment house today said that there may be negative economic fallout as a result of a protracted IDF military operation against Hamas in Gaza. Clal Finance macro-economist Uri Greenfeld estimates that "the influence of the military operation in Gaza depends on the length of time that the operation continues and developments in the Israeli region vulnerable to attack."
The main fear from this operation, according to Greenfeld, is that it will continue for a protracted period of time, and that the government's defense expenditure in 2009 will increase, thus enlarging the budget deficit, which is already higher than its target. Increased government expenditure, alongside an additional reduction in income as a result of lower economic activity in the conflict zone, may broaden the deficit and harm Israel's debt/production ratio, and perhaps even the State's credit rating.
On the subject of the Tel Aviv Stock Exchange, Clal explains, "As we learned from previous occasions, political developments have a small influence in the short term on the TASE indices. We estimate that this situation is no different at the moment and that in the coming days it will be the economic situation that again determines stock market sentiment."
Clal also points out that according to research carried out by the Bank of Israel, the influence of the economic situation, such as factors like inflation, interest, and growth expectation, are stronger and more emphatic than the expected influence of the government deficit.
Published by Globes [online], Israel business news - www.globes-online.com - on December 28, 2008
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