Demand has collapsed and businesses have closed as consumers and workers in Israel are either confiscated or shielded, writes The Financial Times.
Loyal customers of Israel’s Atlas Hotels recently received an unusual email – a desperate request for donations to save the company from collapse.
Atlas has opened its 16 boutique hotels to 1,000 evacuees displaced after Hamas’ deadly rampage in southern Israel on October 7. When the government failed to cover the costs, a whip began.
“We asked for help from suppliers, contacts abroad, our employees and the Atlas A-list – our best customers,” said operations manager Lior Lipman. The message was clear, he added: “If we can’t finance ourselves, the business will collapse.”
Israel’s war against Hamas has sent shockwaves through Israel’s $488 billion economy, crippling thousands of businesses, straining public finances and plunging entire sectors into crisis.
Prime Minister Benjamin Netanyahu has vowed to create an “economy under arms,” pledging large cash transfers to vulnerable companies and regions on a scale most recently seen during the Covid-19 pandemic.
“My leadership is clear: We open the taps and pump money to everyone who needs it,” he said. “Over the last decade we have built a very strong economy and whatever economic price this war takes on us, we will pay it without hesitation.”
Some business leaders welcomed the aid package, but for many it did not go far enough. Critics said the eligibility criteria were too strict, while others said the measures were of no help to large companies.
“The government is failing its people,” said Ron Tomer, chairman of the Manufacturers Association of Israel. Many would not be fully compensated for the loss of earnings, he added: “They will have a nasty surprise when they get their next salary.”
Lipman said Atlas Hotels is still waiting for government help. “I would expect the country to support me if I try to help people,” he added. “[But] I’m not sure we’ll have a safety net.”
Israel has been in a state of shock since Hamas’ violent attack, which officials said left more than 1,400 people dead. They responded with a ground invasion of Gaza and a relentless bombardment that killed some 10,022 Palestinians, according to the enclave’s health ministry.
About 350,000 Israeli army reservists – 8 percent of the workforce – were called up as the country mobilized for war.
Meanwhile, 126,000 civilians were relocated from northern and southern Israel to protect them from Hamas rockets and mortar attacks by Hezbollah, the Iranian-backed Lebanese militant movement.
Polls show overwhelming public support for the war. But its scale takes Israel into new territory. The most comparable event is the 2014 Gaza War, when Israeli forces previously invaded the impoverished strip, but it lasted 49 days and involved far fewer reservists.
However, the conflict continues to have a chilling effect on business activity, particularly in the construction sector.
“Many construction sites were closed by the municipalities,” said Tomer. “They don’t want Palestinian workers there. They say people are upset by the sight of Arab workers holding heavy tools.”
Evidence is already mounting of the war’s destructive impact on economic activity. A survey of Israeli companies by the Central Bureau of Statistics found that one in three companies had closed or operated at 20 percent or less capacity since their founding, while more than half had reported revenue losses of 50 percent or more.
In the south, the region closest to the Gaza Strip, the results were even worse, where two-thirds of companies had either closed or reduced their operations to a minimum.
Meanwhile, the Labor Ministry says 764,000 Israelis – 18 percent of the labor force – are not working after being called up for reserve duty, evacuated from their cities or forced to care for their children at home by school closures.
Under the new regulations, the government will support companies whose monthly revenues have fallen by more than 25 percent due to the war by, among other things, covering up to 22 percent of their fixed costs and 75 percent of their labor costs.
But experts fear this may not be enough if Israel’s economic prospects continue to deteriorate.
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