'Israel' faces economic instability as capital flight surges 62%
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A report by Calcalist paints a bleak picture of the Israeli economy’s near-term outlook, with mounting pressures in multiple sectors.
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A view of a construction site in occupied al-Quds on Monday, September 16, 2024. (AP)
Israeli-based daily business Calcalist recently published an in-depth analysis revealing a dramatic 62% increase in capital flight from "Israel" since October 7, 2023.
This surge in capital outflow, the report notes, has been exacerbated by the political and economic uncertainties following the formation of the extremist government led by Prime Minister Benjamin Netanyahu, Bezalel Smotrich, and Itamar Ben-Gvir.
According to the report, capital flight refers to the rapid exodus of financial assets from a country due to various risks, including political instability, social unrest, or geopolitical tensions.
In "Israel’s" case, the combination of escalating geopolitical risks, internal discord, and financial uncertainty has led investors to lose confidence in the Israeli economy and move their assets abroad.
The weakening of the Israeli shekel is one clear indicator of this phenomenon. The currency has fallen by about 10% since the new government took office and has fluctuated dramatically due to market instability.
Read more: Israeli shekel; one of the world’s worst performers since August
Experts from Calcalist also highlight that the regime's net financial outflows turned negative in the second quarter of 2023, with the third quarter showing a stark net outflow of $21 billion—marking a significant shift from the surplus of $1.25 billion recorded earlier.
FDI down, CDS up
In addition to the financial flight, the report outlines other concerning trends, including a decline in foreign direct investment (FDI) and a sharp rise in credit default swaps (CDS), which have quadrupled since the start of the war.
The widening interest rate gaps between Israeli and US bonds are also seen as an indicator of increasing risks, as foreign investors offload government bonds, signaling a loss of faith in the regime's financial future.
The report paints a bleak picture of the Israeli economy’s near-term outlook, with mounting pressures in multiple sectors. Israeli banks and tech companies are particularly affected, with local investments drying up and international investors increasingly cautious.
Calcalist calls for urgent policy measures to address the growing economic challenges, warning that without action to restore investor confidence, "Israel" could face severe economic consequences, possibly leading to a financial crisis.
While some economic indicators, such as foreign exchange reserves, remain stable, the overall trajectory of capital outflow and investor sentiment suggests that "Israel’s" economic situation could deteriorate further if swift action is not taken.
Read more: Israeli economy 'is a sinking ship': Israeli media
'Israel's' war manifests poverty
Economist Jacques Bendelac warned last month that "Israel’s" economy could face a potential recession if the war on Gaza continues to drag on.
Despite some recovery in early 2024, with a 14% rebound after a sharp 21% contraction in GDP during the fourth quarter of 2023, growth has slowed significantly, with only a 0.7% increase in the second quarter of 2024.
Bendelac cautioned that the prolonged war, combined with rising costs of living and significant disruptions in key sectors like construction, tourism, and agriculture, would exacerbate economic stagnation.
He also highlighted the growing risks of poverty, particularly for settler communities, as many families struggle to repay debts and loans amidst the crisis.
Humanitarian organizations have already seen a surge in demand for aid, with more individuals relying on food distribution services.
Bendelac noted that while economies often experience a strong rebound after a war, the longer this conflict persists, the slower and more difficult the recovery will be.
