Israel’s war in Gaza to pose long-term risk to investments, analysts say

Flight and bus services disrupted as the country’s largest union goes on strike to pressure government into reaching a deal with Hamas

An almost empty Ben Gurion Airport after the Histadrut trade union announced a general strike in Israel on Monday. EPA

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Israel’s general strike, the first since the war began last year, is expected to have a minimal impact on its economy but the continued conflict poses a long-term risk in attracting investment, analysts have said.

The Histadrut labour federation, which represents hundreds of thousands of workers across the economy, called a general strike on Monday to put pressure on the Israeli government to reach a deal with Hamas to release the remaining hostages in Gaza.

The move came after Israel said it had recovered bodies belonging to six hostages from a tunnel in Gaza, prompting tens of thousands of protesters to take to the streets in mourning and anger.

A labour court in Tel Aviv, however, has ordered a general strike to end at 2.30pm Israel time, more than three hours earlier than planned, with disruption to flight operations at Tel Aviv’s Ben Gurion Airport and bus services reported. Some civil servants at government ministries reportedly stayed away from offices and took to the streets.

The strike “will have insignificant effects on the economy and the markets, considering the big picture”, Omer Moav, professor of economics at the University of Warwick and Reichman University, told The National on Monday.

“Israel is suffering huge damage to the economy from a combination of war and a government that is doing a bad job,” he said.

Israel has been involved in a war with Hamas for nearly a year after the fighters from the group attacked southern Israel, killing about 1,200 people and taking more than 200 hostages.

Israel retaliated with air strikes and a siege of the enclave, with the Palestinian death toll now at more than 40,700.

Israel has also launched attacks in Lebanon and Syria, raising concerns that the war could engulf the entire region.

“The markets want to see an end to the war, which is having a growing negative impact on the economy and government finances,” said Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit.

Last month, Fitch downgraded Israel’s credit ratings to A from A+, with a negative outlook, citing the war in Gaza, heightened geopolitical risks and military operations on a number of fronts that continued to affect its economy.

Fitch projected a budget deficit of 7.8 per cent of GDP in 2024 and debt to remain above 70 per cent of GDP in the medium term amid continued military spending.

“The conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts," Fitch said. "In addition to human losses, it could result in significant additional military spending, destruction of infrastructure and more sustained damage to economic activity and investment, leading to a further deterioration of Israel's credit metrics."

The assessment came after the Bank of Israel in July lowered the country’s growth outlook from its April estimates because of the impact of the war in Gaza, with a “long way to go” before its economy can resume normality.

The Israeli economy is now forecast to grow by 1.5 per cent this year and 4.2 per cent in 2025, with the central bank's predictions cumulatively 1.3 percentage points lower than the April forecast.

“The longer conflict continues in and around Israel, the more damage to its economy and the risk associated with long-term inward investment,” said Hasnain Malik, head of emerging markets strategy at Tellimer, an investment research company in Dubai.

"The priority of the government is political survival and maintaining crisis conditions suits that purpose for now.”