Intifada cost Israeli economy 3.8% of GDP in 2002
The Jerusalem Post
27 March 2003
The intifada cost the Israel economy 3.8% of GDP in 2002, amounting to NIS 17.9 billion, the Bank of Israel research division reports.
The estimate of the effect of the intifada on Israel's economy is included in the Bank of Israel report for 2002, scheduled for publication next Monday.
The Bank of Israel believes that had the intifada ended on December 31, 2001, the Israeli economy would now be growing by an annualized 2%.
The Bank of Israel warns a continuation of Palestinian violence and terrorism for the third consecutive year in 2003 will aggravate the damage to tourism and other industries, furthering lowering GDP.
The intifada has lowered per capita GDP in Israel by an estimated 8%. According to the Bank of Israel, the intifada, which broke out just before the fourth quarter of 2002, has had a decisive effect on the recession afflicting Israel in the past 30 months, in contrast with previous violent conflicts.
The current fighting is having a long-term effect on residential areas and civilian employment, and changing the Israeli lifestyle.
The Bank of Israel writes that the intifada initially struck at incoming tourism and Israeli exports to the territories, and the regular arrival of Palestinian workers from the territories.
Intifada damage, however, later spread to many other areas, particularly investment and private consumption.
Furthermore, the war against terrorism has required the allocation of additional resources to the Israel Defense Forces, thereby greatly increasing government spending, at the expense of other items.
The recession and swelling budget deficit have made increasingly restrictive economic measures necessary, which have further aggravated the negative effects of the confrontation with the Palestinians.
The Bank of Israel assumes that continued Palestinian terrorism and the economic plan will detract from private consumption in the short term, thereby hampering a renewal of economic growth. Private consumption accounts for 40% of Israel's annual economic growth. Two scenarios are taken into account for estimating the effect of the intifada.
The optimistic scenario envisions a quick return to economic growth when the conflict ends, while the pessimistic scenario assumes a slower economic recovery.
The Bank of Israel stresses that the calculation of the damage caused by the conflict with the Palestinians excludes its side effects, such as the risk that Israel's credit rating will be downgraded, and the increased cost of raising capital.
Also not taken into account are the weakening of the banking system, the increased risk of a financial crisis, the rise in insurance premiums, the injury to the victims of terrorism and their families, and the indirect costs of that that injury.
For that reason, the Bank of Israel estimate of the cost of the intifada is probably too low, and the true total loss of GDP is probably higher.