Following the Hamas-led terrorist attack on October 7, Israel faces serious economic repercussions. This is mainly due to the immediate ban on almost all Palestinian workers from entering the country. This worrying news was given by the governor of the central bank, Amir Yaron, at the World Economic Forum in Davos. He shed light on the dual shocks (supply and demand) that are impacting the country's economy.
The supply shock affects construction and agriculture
Governor Yaron described the supply shock affecting Israel's economy, particularly in the construction and agriculture sectors. Given that one-third of the construction workforce is made up of Palestinians from the West Bank, the sudden absence of these workers is causing 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 cause prices to rise in the second half of the year.
Additionally, Governor Yaron emphasized the complexity of the economic challenges, noting the simultaneous negative impact of demand resulting from the ongoing conflict. The prevalence of this demand shock, linked to recent war events, requires careful monitoring as the country navigates its monetary policy in the coming months.
Impact on Palestinian workers and economy
Before the ban, more than 150,000 Palestinian workers entered Israel daily from the occupied West Bank, contributing significantly to various sectors, including construction and agriculture. The abrupt ban has not only dealt a blow to the Israeli economy but has also caused significant economic difficulties in the West Bank. The ban has intensified resentment over Israel's long occupation and its actions in the Gaza Strip.
Economic cost and call to action
In late December, Israel's Finance Ministry warned that banning Palestinian workers could cost the country billions of shekels a month. Business and factory owners urged lawmakers to reconsider the decision, highlighting the dire consequences for industries such as construction. Raúl Sargo, president of the Israeli Builders Association, highlighted the difficult situation of the industry, with closures and reduced productivity.
Exodus of foreign labor from agriculture
Israel's agricultural sector, which relies heavily on foreign labor, has also suffered. After the October attack, at least 10,000 Thai workers left the country. The impact on agriculture, along with the broader ban on Palestinian workers, has created a challenging scenario for Israel's economy.
Optimism amidst challenges
Despite the formidable challenges, Governor Yaron expressed optimism about Israel's ability to weather economic crises. He underscored the dynamic and resilient nature of the nation, citing past instances where the economy recovered after military events. While he acknowledged the difficulties, Yaron also expressed hope for new opportunities in a more stable environment.
Still, Israel finds itself at an economic crossroads, grappling with the consequences of banning Palestinian workers from working. The current dual crisis and conflict pose significant challenges, but the nation remains hopeful in its ability to overcome them and rebuild.
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