Jerusalem----March 20........The value of all the goods and services in the Israeli economy is $100 billion a year (national product). The loss of one percent of the national product is equal to $1 billion. The loss of NIS 41 billion ($8.5 billion) means a painful loss of 8.5% of the national product. That is a huge amount equivalent, for instance, to the education budget plus transfer payments to the needy; an amount six times greater than the state budget for public security; and 160 times the Knesset budget.

In addition to the losses, there is, of course, a sharp increase in security expenditures. The intifada has already caused a NIS 4.9 billion increase to the security establishment (army, Police, Border Police and others), and another expensive bill will soon be presented to the government for payment. Within a few months the Israeli economy passed from grandeur to depression, and was thrown in to the deepest recession in 50 years.

In the year 2000, the Israeli economy registered a meteoric growth rate of 6.4%. In 2001 the national product dropped by half a percent, the lowest growth rate since 1953.

Production in the business sector shot up 8.5% in 2000. It dropped 2.2% in 2001.

In 2000, the national product per capita rose 3.6%. In 2001 it dropped 3%.

Investment in the Israeli economy grew 9.5%. In 2001 it dropped 11%.

Just like the domino principle, the intifada, together with the global recession and the Nasdaq crisis, knocked over the tiles of the Israeli economy one after the other.

Revenues from the tourism sector dropped 47% in 2001. The number of tourists was 1.2 million – a 51% drop. Worried sector leaders predict that less than one million tourists will come in 2002, turning the clock back 30 years. By the end of 2002, Israel will have lost four million tourists and revenues of $4 billion due to the conflict. This is the practical collapse of an entire sector.

46.1 thousand building starts were registered in Israel in 2000. In 2001 only 31.7 thousand building starts were registered. That is a 31% drop. Building sector production dropped 11% in 2001 (continued from a 5% drop in 2000). Investments in the building sector dropped 16%. The number of real estate transactions dropped by 12%.

Industrial production shot up 11% in 2000. In 2001 it dropped 6%. Hi-tech production shot up 26% in 2000. In 2001 it dropped 24%.

The farmers suffer from a shortage of workers due to the departure of Palestinian workers, and at every opportunity demand the importation of more and more (and more) foreign workers from Thailand and China. Indeed, many workers from the territories have been replaced by foreign workers. 52,200 foreign workers legally entered Israel in 2000. 74,400 foreign workers legally arrived in 2001, a jump of 44%. The number of foreign workers in Israel is estimated to be 250,000, equivalent to the number of unemployed Israelis, and most of them do not have work permits. Finance, Labor and Interior Ministry plans to lower the number of foreign workers have not been particularly effective.

Under normal circumstances, the number of salaried employees normally grows, due to growth of factories’ production. A very worrying statistic was registered in Israel in 2001: The number of salaried workers in the business sector decreased by 56,000 and reached 1.62 million people at the end of 2001.

The number of unemployed jumped 40,000 in 2001 to a new all time record: 260,000 unemployed, and it is expected to cross the 10% barrier and reach the 300,000 line by the end of 2002.

Israeli exports shot up 24% in 2000, In 2001 they dropped 13.2%. Hi-tech exports rose 26% in 2000, and dropped 20% in 2001.

Foreign investors (such as tourists) are looking for quieter places. Foreign investors invested $3.1 billion in Israeli in 2001, a 67% drop compared to 2000. Investments in Israeli stocks dropped in 2001, aided by the Nasdaq crisis, by 98% (!), and stood at only $108 billion. Foreign investors have withdrawn NIS 1.2 billion from the Tel Aviv stock market since the start of the intifada. Direct investments in the economy (factories, businesses, real estate) also dropped in 2001 by 33%, to $3 billion.

The Israel “consumption celebration” ended in 2001. The quality of life of “Mr. Israeli” (per capita consumption) rose 4% in 2000. It crawled 0.6% in 2001. Purchases of new cars dropped 10.5%. Purchases of electrical appliances dropped 10% (after a sharp 17% rise in 2000). Terrorist attacks have created a fear of public places. Shopping malls and markets are not packed as in the past. The moving pleas of the Finance Minister – “Go out to the malls and buy blue & white” – were also not particularly effective. Sales at marketing chains grew 12% in 2000. In 2001 they did not grow at all.

There is one thing the Israelis did not stop doing – travel overseas. 3.6 million people left the country in 2001, a rise of 1% compared to 2000.

The Finance Ministry growth forecast for 2001 was 4.5%. In practice, the economy contracted half a percent. The forecast for 2002 was also rosy and stood at 4%. At the start of the year, it was lowered to 2%, and the budget was cut by billions of shekels. It is now clear to the Finance Ministry that the economy will not grow at all this year. (Bank of Israel) Governor David Klein said growth will be 0%; the IMF predicts growth of only 1%. The Finance Ministry is still not changing its official forecast because it wants to avoid (for the time being) further budget cuts.

The expected loss of 8.5% of the national product will lead to a loss of NIS 14 billion in tax revenue and increase the budget deficit (the government’s overdraft). In this situation, a further (deep) budget cut and levying of new taxes appears inevitable. This time tax rises on health-damaging products like cigarettes and alcohol seem to be in store.

Already in March it is possible to say that 2002 will be another lost year for the Israeli economy. Experts say that a small open market like Israel’s, connected by an umbilical cord to the overseas markets (exports, investments), will not achieve growth as long as the canons are thundering. Investors, tourists and business people will return here only after long months of complete cease-fire.

Be that as it may, Finance Minister Silvan Shalom is optimistic and sees signs of growth. “We have assessments,” he says, “that the national product will grow nicely and positively in the first quarter.” But even he know that a long time will pass before the champagne bottles can be opened here.