[Economics] A ‘Lost Decade’ Threatens Economy of Wartime Israel

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The ongoing war in Gaza is the most expensive in the country’s history: The central bank has estimated the total cost of the conflict will run to 250 billion shekels ($67.4 billion) through 2025. Defense spending before the war was at an all-time low of 4.5% of GDP. It’s set to double this year to 9%, according to Manuel Trajtenberg, a professor emeritus in the economics department of Tel Aviv University.“The decisive test will be the government’s ability to lower the defense-spending-to-GDP ratio back to reasonable levels within several years,” he says. “Otherwise, we may slide back into another lost decade.” Working in Israel’s favor is that its starting point was strong. Over the past 15 years, the nation’s per-capita GDP has risen above that of Britain, France and Japan. But costs are apparent. When Hamas attacked and some 300,000 reservists rushed into uniform, Israel’s powerhouse tech industry suddenly found itself short of labor, while businesses in and around the Tel Aviv area lost some of their best customers. With Prime Minister Benjamin Netanyahu having committed billions of shekels for spending demanded by his ultra-Orthodox coalition partners, many economists worry of a “spiral of collapse” — where Israel’s better-educated, high-earning citizens choose to emigrate rather than shoulder the fiscal burden of supporting large Orthodox families. Scores of economists conveyed that message recently to the government, in a letter calling for an end to public support for schools that don’t train students for the modern labor market and requiring ultra-Orthodox to be drafted. Israel already underinvests in areas such as education and health compared with developed economies. If policymakers look to free up funds for military upgrades by paring back those priorities, along with transportation and welfare, it’s the economy that may pay the price.The US economy expanded at a “slight or modest” pace across most regions since early April and consumers pushed back against higher prices, the Federal Reserve said in its Beige Book survey. Atlanta Fed President Raphael Bostic said he’s hopeful that the “explosive” price pressures seen during the Covid-19 pandemic will normalize over the next year. President Javier Milei’s main legislative attempt to deregulate Argentina’s economy is a step closer to a decisive vote. Australia’s inflation is showing persistent strength and weighing heavily on the finances of some households, a senior Reserve Bank official said. The ECB is set to impose fines on several lenders for their protracted failure to address the impact of climate change. Need-to-Know Research China’s households have “taken a big hit” to their wealth in recent years thanks especially to the property-market slump that’s caused the first sustained drop in prices since the current urban housing system emerged in the 2000s, according to Gavekal Dragonomics.

https://www.bloomberg.com/news/newsletters/2024-05-30/world-economy-latest-israel-s-lost-decade