Following the Hamas-led terrorist attack on October 7, Israel faces serious economic repercussions. This is mainly due to the immediate ban on entry of almost all Palestinian workers into the country. Central Bank Governor Amir Yaron delivered this alarming news at the World Economic Forum in Davos. He highlighted the dual shocks – supply and demand – affecting the country's economy.
Supply shock hits construction and agriculture
Governor Yaron spoke about the supply shock that hit the Israeli economy, especially in the construction and agricultural sectors. Since one-third of the construction workforce consists of Palestinians from the West Bank, the sudden absence of these workers causes a negative supply shock. This trend is reflected in the agricultural sector, where foreign workers are vital contributors. Yaron warned that this supply shock could lead to higher prices in the latter half of the year.
Furthermore, Governor Yaron emphasized the complexity of the economic challenges, pointing to the concurrent negative demand shock resulting from the ongoing conflict. The dominance of this demand shock, linked to recent war events, requires vigilant monitoring as the country navigates its monetary policy in the coming months.
Impact on workers and the Palestinian economy
Before the ban, more than 150,000 Palestinian workers from the occupied West Bank entered Israel daily, contributing significantly to various sectors, including construction and agriculture. The sudden ban not only dealt a blow to the Israeli economy, but also caused major economic hardship in the West Bank. The ban exacerbated dissatisfaction with Israel's long-standing occupation and its actions in the Gaza Strip.
Economic losses and a call to action
In late December, the Israeli Ministry of Finance warned that the ban on Palestinian workers could cost the country billions of shekels per month. Business owners and factories urged lawmakers to reconsider, stressing the dire consequences for industries such as construction. Raul Sarjo, president of the Society of Builders of Israel, highlighted the plight of the industry, with closures and declining productivity.
Migration of foreign workers from agriculture
Israel's agricultural sector, which relies heavily on foreign labor, also suffered. Following the October attack, at least 10,000 Thai workers left the country. The impact on agriculture, coupled with the broader ban on Palestinian workers, has created a challenging scenario for the Israeli economy.
Optimism amid challenges
Despite the enormous challenges, Governor Yaron expressed optimism about Israel's ability to withstand economic shocks. He stressed the country's dynamic and flexible nature, citing previous cases in which the economy rebounded after military events. While acknowledging the difficulties, Yaron also expressed hope for new opportunities in a more stable environment.
However, Israel finds itself at an economic crossroads, grappling with the effects of the ban on Palestinian workers. The dual shocks and ongoing conflict pose significant challenges, but the nation remains optimistic about its ability to overcome these challenges and rebuild.
