Michael Ben-Gad, Professor of Economics at City from University of London talked to CGTN Europe on Israel's economy growth.
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00:00Well, Michael Ben-Gad is Professor of Economics at City University of London. He joins us now. Prof, thanks so much for joining us.
00:07You know, this war has cost Israel an estimated $16 billion already, and yet we're seeing this rebound. Why is it happening?
00:17Well, first, if I may correct the figures that you cited, those are annualised numbers.
00:24The quarter-to-quarter changes were not nearly as drastic. Neither was the drop in the last quarter of 2023 and the increase 14%.
00:35Again, that's an annualised figure. Overall, the economy has reached, it's still, compared to a year ago, it's a little over 1% smaller than it was a year ago.
00:47So we haven't completely recovered from the war, but the trend is definitely upwards.
00:52A lot of this has to do with the resilience of the high-tech industry. That's a big factor in Israel's success.
01:02Israel remains relatively one of the richest countries in the world, despite everything.
01:09But there are, of course, problems. I should also mention the positive side of the ledger.
01:16The Bank of Israel was very effective at stabilising the economy in the immediate aftermath of the attack of the 7th of October.
01:23There was an announcement to sell about $30 billion worth of reserves. In the end, it was only $8 billion that was necessary in order to stabilise the shekel.
01:34The shekel has completely recovered. So those are the good things.
01:40On the negative side, the budget deficit is going to be at least 7% of GDP this year, which is a lot for a country like ours.
01:50We still have various issues in terms of how the government allocates its budget, not just in terms of military expenditure, but also in terms of welfare payments to various members of the coalition.
02:05The longer this war continues, will it require different spending decisions from the Israeli government?
02:14Well, that's already been taken into account to some degree.
02:18I think there's been a rethink in terms of the defence needs. It's very clear that there was a certain complacency.
02:26There was a sense that perhaps we didn't need to spend so much on defence.
02:31So now there's a bit of an argument about how much extra, but it's clearly going to be extra, even if the war were to stop tomorrow.
02:39It's become clear that our neighbours, or I should say the hostile neighbours, are perhaps stronger than we anticipated.
02:49And we're going to have to allocate more money and more human resources as well.
02:54So, for example, we're bringing back conscription was down from 36 months for men down to 32.
03:04It's going back to 36. Reservists will have to spend more time in the military over the course of a year.
03:12That has an effect on the economy as well, because those people are not engaged in productive work.
03:18Yeah, I noticed that, I think it was just today, Israel's talking about support for small businesses,
03:23because many people who run those businesses are now basically on the front line.
03:28The other interesting factor is this push. We've seen it from Takea disinvesting from Israel.
03:36I think it's the fourth largest trading partner. But at the same time, we're seeing a lot of support for Israel.
03:43If we look at the sale of Israeli bonds, they have gone up quite significantly.
03:48Even, I've been reading, US states are actually buying Israeli bonds.
03:53So if we look at its relationship with its trading partners, do you see it continuing to enjoy support from its friends?
04:04Look, in the end, it's not about friendship. This is about business.
04:08If Israel has things that are useful for the world, and we do sell a lot of capital goods, people will buy them.
04:15I don't expect the effect of sanctions to be very, very severe.
04:19I mean, there are places that are trying to boycott and things like that.
04:22But we've lived with that for the last 76 years. This is nothing new.
04:27In the end, we've been able to build industries that can cope with that.
04:35So I'm somewhat less concerned. I'm more concerned about the effect.
04:40One of the effects of the attack was it revealed very strange things about Israel in general.
04:48We have a public sector that is not necessarily completely competent, especially the civilian sector.
04:57I mean, the defense has more or less recovered.
05:00At the same time, the civil society is extremely resilient.
05:03A lot of the welfare needs of the people who have lost their homes and are still displaced both in the north and the south by the fighting
05:14are being met not by the government but by private charities and civil society.
05:20And that's kind of unusual.
05:22And I think in the long run, that's actually a sign of a society that will recover.
05:31All right. Thank you so much for sharing your views with us.
05:33Professor Michael Ben-Gad of City University in London.