How Is Israel’s Economy Affected by the Current War?

NEW YORK (TheStreet) -- Israel and Hamas continue to fight on as the latest Middle East conflict continues amid intermittent cease-fires.

Israel's military objective continues to be to destroy Hamas' tunnels and rocket launchers and bring a period of sustained quiet to the country.

From the Israeli perspective, this latest conflict is proving to be expensive in many ways. The Israeli defensive operation has been met with increasing resistance from the international community, with urgent calls for an immediate ceasefire. The longer the conflagration continues, the greater the likelihood that Israel will face growing economic and political isolation.

Tourism to Israel has dropped off significantly and will likely remain low in the aftermath of the war.

Israel's central bank made comments to the effect that 0.5% may be shaved off the economic growth forecast for the year. A financial consultant to the former Governor of the Bank of Israel alluded to the need for sound economic policy to guide the Israeli economy moving forward. Foreign investors tend to shy away from countries under attack and this will become a factor moving forward.

Last week the Bank of Israel reduced the benchmark interest rate from 0.75% to 0.50%. This has been done in an attempt to provide momentum to the Israeli economy in the midst of the war effort. Israeli financial analysts expect that the current Gaza operation will likely have the same effect on the economy as the 2006 Lebanon war. The net effect of that conflict was a modest decline of 0.5% of gross domestic product.

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