Israel regressing to an underdeveloped country

Benjamin Netanyahu and Bezalel Smotrich credit: Ronen Zvulun Reuters
Benjamin Netanyahu and Bezalel Smotrich credit: Ronen Zvulun Reuters

The economy will quickly rebound from negative growth but in the longer term, unless the government wakes up and changes policies, the country's prospects are bleak.

Both 2023 and 2024 are lost years. Negative per capita growth last year and perhaps this year too. Pessimists expect absolute negative growth in 2024 rather than just the economic growth outpaced by population growth in 2023. All this simply gives an official rubber stamp to what was previously clear anyway.

But those who say we are not to blame for this bleak economic situation are right. The war was forced on us and it is eroding GDP, harming our personal security and our mood for shopping, leisure and entertainment, weakening our image in the world (and the foreign currency flowing into the country), and increasing government spending, mainly for the defense budget and buying tanks, missiles, and compensation and rehabilitation for casualties - all of which does not encourage growth. It's tougher to run with such heavy weights on your back.

Apart from the emotional and social hardship during the war and the one expected the day after, the expected cost of the war is about NIS 250 billion, which is a burden of an extra NIS 100,000 per family on average, or hundreds of thousands of shekels, taking into account that most of the burden will be paid as usual only by the higher socioeconomic groups.

What about economic growth after 2030?

All this is less relevant, when measuring Israel's economic performance over longer periods than one or two years. The really important figure is what will happen here in the year after the war, and even more so, how we take care of growth figures from 2030 onwards. The cliché says that "a good crisis should not be wasted." Major crises should shake things up and demand from everyone around to recalculate a course, otherwise they might simply disappear. The war and negative growth should make us realize that the State of Israel reached October 2023 with countless problems unrelated to the war, and that only inertia and economic growth from year to year allowed it to sweep those problems under the carpet.

As of now, more than 4 months into the war, it doesn't seem like Israel's policymakers are thinking of getting out of their comfort zone. It's business as usual - the budget continues to encourage an entire sector to continue not contributing to the security and economic burden, and whose share of the entire population is expected to grow from 13% to 20% in 2040 and 32% in 2065 (every third Israeli). At the same time, the public sector is collapsing - in welfare services, education, health, transportation and more. Even the Metro planned for the Tel Aviv Metropolitan region, like a mass transit system that has been running under every western city for a long time or at all, is barely being moved forward. This was before the war dug a hole in the state budget. These are just a few of the problems. If we continue push the problems aside year after year, the State of Israel is on its way to regressing to an underdeveloped country, regardless of Hamas and Hezbollah. This is not a prediction but a simple fact.

In a few weeks the politicians will wave in front of us the recovery of growth that will surely come in the first quarter, certainly in relation to the catastrophe of the last quarter. We have resumed shopping with our credit cards and buying a few more apartments from developers, who are allowing us to pay some of the sum later, without interest and not linked to inflation. But these longer term problems are many times more troubling than a negative per capita growth of 0.1% in a year of war.

Published by Globes, Israel business news - - on February 19, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Benjamin Netanyahu and Bezalel Smotrich credit: Ronen Zvulun Reuters
Benjamin Netanyahu and Bezalel Smotrich credit: Ronen Zvulun Reuters
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