Bank of Israel Governor Amir Yaron speaks during an interest rate news conference in Jerusalem, Israel, Monday, Nov. 27, 2023.
Gobi Wolf | Bloomberg | Good pictures
The immediate ban on almost all Palestinian workers entering Israel following the October 7 Hamas-led terror attack has dealt a blow to the Israeli economy, the country's central bank chief told the World Economic Forum in Davos.
„We're working in a very uncertain environment, and as you say, I would say there are two types of shocks: There's a supply shock,” Bank of Israel Governor Amir Yaron told CNBC's Dan Murphy. „And it's primarily in the construction industry … a third of that industry is Palestinians from the West Bank, and now they're not coming to work.”
„It also affects agriculture, where they are, where there are other foreign workers,” Yaron said. „So it's going to take some time, it's a negative supply shock, and it's going to increase prices in the second half of the year.”
He said the bank should monitor these price developments, „On the other hand, we've seen a negative demand shock, obviously in a war. And so far that negative demand shock has been very dominant. And we'll get. To monitor that as well, as we go forward as we think about how to pursue monetary policy.” .”
Before October 7, more than 150,000 Palestinian workers from the occupied West Bank entered Israel daily to work in various sectors, mainly construction and agriculture.
The ban on many of these workers returning to their jobs in Israel has dramatically affected the economy of the West Bank. It has also contributed to growing anger and unrest over Israel's decades-long occupation and its relentless bombardment of the Gaza Strip, which Palestinian health officials say has killed more than 24,000 people. The Israeli offensive followed a surprise attack on southern Israel by Hamas militants from Gaza, killing around 1,200 people and taking another 240 hostages, 136 of whom are still in captivity.
In late December, Israel's finance ministry warned that the ban on Palestinian workers would cost Israel's economy billions of shekels a month.
„We calculated what the economic damage would be if Palestinians don't go to work… and it's estimated at about NIS 3 billion ($830 million) per month,” a finance ministry representative told Israel's parliament, the Knesset, at the time. , according to local media.
In December business and factory owners pressured lawmakers to allow 8,000 to 10,000 Palestinian workers to return to their jobs in Israeli settlements and businesses in the West Bank.
In comments to the Times of Israel, Raul Zarko, head of the Israel Builders Association, told the Knesset: „We are in a dire situation… The industry is completely at a standstill and only 30% production. Fifty percent of sites are closed, affecting Israel's economy and the housing market.”
Israel's agricultural sector is also heavily dependent on foreign workers, particularly Thai workers — at least 10,000 of whom have fled the country since the October attacks, during which many Thai farm workers were killed and taken hostage.
Asked what tools the bank has to respond to a possible escalation of the war to Israel's northern border with Lebanon, Yaron stressed that the focus should be on preventing financial instability.
„We all hope that doesn't happen. If it does, your mindset becomes financial stability,” the banker said. „That means the whole view of the interest rate process … expansionary monetary policy stops, and you use the types of instruments that we've used so far, things like FX or things like that. There you go.”
Yaron added that he was optimistic about his country's ability to deal with shocks, given its decades of familiarity with wars.
„I think we still have to remember that Israel is a dynamic economy,” he said. „It's shown that it's resilient, that it can bounce back…with every military event, it's shown that it can come back and grow faster. In fact, I would say the homeland security, the economy, the need for it has grown. And hopefully, one day, a better one with moderate states.” If there is context, they will also bring new opportunities.”
„Oddany rozwiązywacz problemów. Przyjazny hipsterom praktykant bekonu. Miłośnik kawy. Nieuleczalny introwertyk. Student.