Economic Observation 500 Days After the Israeli Palestinian Conflict

Since the outbreak of a new round of Israeli Palestinian conflict on October 7, 2023, it has been over 500 days. This conflict has not only brought about a humanitarian disaster, but also had a profound impact on both Israel and Palestine, as well as the global economy. An in-depth analysis from an economic perspective can enable us to have a more comprehensive understanding of the complexity and harmfulness of this conflict.

At the beginning of the conflict, the Israeli economy suffered a heavy blow. According to the data of the Israel Central Bureau of Statistics, in the fourth quarter of 2023, its gross domestic product (GDP) dropped by 19.4% compared with the same period of the previous year, which is the most serious contraction of the Israeli economy after the end of the COVID-19 epidemic. Although the economic growth rate for the whole year of 2023 remains at 2.0%, there is a significant decline compared to 6.5% in 2022.

From the perspective of economic structure, multiple fields have been impacted. In terms of consumption, conflicts have caused panic among the public, leading to a significant decline in personal consumption. During the period of October to December 2023, personal consumption decreased by 26.9%, consumer confidence was dampened, and non essential consumption expenditures sharply decreased. Retail, catering, and other industries were the first to bear the brunt, with many stores being deserted and revenue plummeting significantly.

Foreign trade was also impacted, with imports of goods and services decreasing by 42.4% and exports decreasing by 18.3%. On the one hand, conflicts lead to logistics disruptions, significant increases in transportation costs, disruptions in the operation of key logistics nodes such as ports and airports, and delays or even interruptions in the transportation of goods; On the other hand, the demand for Israeli products in the international market has decreased due to conflicts, and some countries' companies have reduced or suspended trade with Israel due to risk considerations.

The Bank of Israel predicts that, on the premise that the Israeli Palestinian conflict can end within this year, the country's gross domestic product will grow by 1.5% in 2024, significantly lower than the previously predicted 3%. If the conflict continues or expands, the economic outlook will become even more bleak.

The Palestinian economy is on the brink of collapse in the conflict, and the situation in the Gaza Strip is particularly severe. According to a report by the United Nations Conference on Trade and Development, since Israel launched military operations against the Gaza Strip in October 2023, the gross domestic product of the Gaza Strip plummeted by 81% in the fourth quarter of last year and shrank by 22% for the whole year. As of mid-2024, the gross domestic product of the Gaza Strip is less than one sixth of its 2022 level.

The employment situation is extremely severe. As of January 2024, two-thirds of the pre conflict jobs have been lost, and the unemployment rate is close to 100%. A large number of factories and enterprises have been forced to close due to conflicts, and the damage to infrastructure has also made it difficult for economic activities to proceed. The insufficient power supply and paralyzed transportation network have seriously affected production and commercial activities.

The two pillar industries of agriculture and tourism have suffered a catastrophic disaster. 80% -96% of agricultural facilities in the Gaza Strip have been destroyed, significantly reducing food production capacity and posing serious food security issues for the population. The tourism industry has almost stagnated, with a sharp decline in the number of tourists, and related industries such as catering and accommodation have also fallen into difficulties. The once bustling tourist attractions are now deserted, with extremely low hotel occupancy rates, and tourism practitioners have lost their source of income.

The spillover effects of the Israeli Palestinian conflict are gradually becoming apparent in the surrounding areas. As a major regional power, Egypt's economy has been impacted by various factors. Egyptian President Sisi stated that due to attacks by the Houthi armed forces in Yemen on shipping in the Red Sea, revenue from the Suez Canal will decrease by 40% to 50% in 2024. The Suez Canal is an important source of fiscal revenue for Egypt, and the decrease in revenue has put considerable pressure on Egypt's finances. At the same time, the conflict has caused damage to Egypt's tourism industry, with tourists reducing their travel to Egypt due to safety concerns, and related industries such as hotels and travel agencies experiencing a decline in revenue.

From a global perspective, the Israeli Palestinian conflict has had a certain impact on the energy market. Although the current conflict has not yet led to a significant reduction in oil supply, market concerns about the stability of oil supply in the Middle East have intensified, resulting in frequent fluctuations in oil prices. If the conflict further escalates and affects the oil production and transportation of major oil producing countries in the Middle East, global oil prices may rise sharply, leading to an energy crisis and hindering global economic recovery.

After 500 days of conflict between Palestine and Israel, the economies of both sides have suffered heavy losses, and the regional and global economies have also been affected to varying degrees. There is no winner in conflicts. Only through peaceful negotiations can we achieve peaceful coexistence between Palestine and Israel, fundamentally solve economic difficulties, and restore regional and global economic stability and prosperity. The international community should increase its efforts to promote the peace process and create conditions for peace and development in the Israeli Palestinian region.