Economic sources in Jerusalem believe that the end of the intifada, following the death of Palestinian Authority (PA) chairman Yasser Arafat, could add 0.7-1.8% to Israel's GDP growth, as foreign buyers and investors return to the country. A decline in defense spending in the war against terrorism will be a contributing factor, assuming that terrorist attacks are halted completely, especially suicide bombings within the Green Line.
Official government projections, made before the recent developments in the PA, are for 4.1% growth in 2004 and 3.8% growth in 2005. The Bank of Israel predicts slightly lower growth. There are no plans at this time to revise the official forecasts, because the future is "still uncertain".
The government forecasts are partly based on a continuation the relatively calm security situation, a stable Nasdaq at around 2,000 points, and further US GDP growth. The government's working assumption is that Israeli exports to the territories will not return to their pre-intifada levels, even after the intifada ends. Bilateral Israeli-PA trade exceeded $5 billion in 2000. In addition, a very long time will pass before international and other project are initiated, especially in infrastructure.
The intifada caused Israel an estimated loss of 3.8-5.6% of GDP in 2002-03, amounting to NIS 20-30 billion. The intifada caused a loss of 3.1-3.8% loss in GDP in 2002 and a further loss of 0.8-1.8% in GDP in 2003. There are not yet any reliable estimates of the economic damage for 2004.
Only in 2004, did Israel's economy resume a growth rate of 4.1%, still below its potential annual growth rate of 4.5%. The officials said the improvement in the security situation and the increase in private consumption amounted to 40% of Israel's GDP.
Arafat's death could ease pressure on the 2005 budget in two ways:
- The disengagement plan could be carried out as part of a diplomatic settlement and the consent of the new Palestinian leadership, rather than as a unilateral Israeli move.
- The government might decide to build the separation fence and Jerusalem envelope in stages and under a more flexible timetable.
Published by Globes [online] - www.globes.co.il - on November 11, 2004