Bank of Israel Governor Amir Yaron speaks at an interest rate press conference in Jerusalem, Israel, Monday, November 27, 2023.
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The immediate ban on almost all Palestinian workers from entering Israel following the October 7 Hamas-led terrorist attack has shocked Israel’s economy, the country’s central bank chief said at the World Economic Forum in Davos. Ta.
“As you can see, we are working in a very uncertain environment. I would say there are two types of shocks: supply shocks,” Bank of Israel Governor Amir Yaron told CNBC’s Dan Murphy. Told. “And it’s mainly the construction industry, where a third of that industry is Palestinians from the West Bank, and now they’re not coming to work.”
“It’s affecting agriculture, it’s affecting the places they’re in, it’s also affecting other foreign workers,” Yaron said. “That’s going to take some time. This is a negative supply shock that could push prices higher into the second half of the year.”
He said banks need to monitor these price developments, adding: “On the other hand, obviously we’re at war, we’ve also seen negative demand shocks. Negative demand shocks are, and will continue to be, the most dominant,” he added. “We need to monitor that as we move forward with how we think about the continuation of monetary policy.”
Prior to October 7, more than 150,000 Palestinian workers from the occupied West Bank were entering Israel every day to work in various sectors, mainly construction and agriculture.
With most of these workers barred from returning to their jobs in Israel, the West Bank’s economy has been dramatically damaged. It also contributes to growing anger and anxiety over the decades-long Israeli occupation and relentless shelling of the Gaza Strip, which has killed more than 24,000 people, according to Palestinian health authorities. The Israeli offensive began after Hamas militants from the Gaza Strip launched a surprise attack on southern Israel, killing around 1,200 people and taking a further 240 hostages, of whom 136 remain prisoners.
In late December, Israel’s Ministry of Finance warned that the ban on Palestinian workers could cost Israel’s economy billions of shekels a month.
“We have calculated how much the economic damage would be if Palestinians did not go to work…The amount is estimated at approximately NIS 3 billion ($830 million) per month,” a representative from the Ministry of Finance said. He spoke at the Knesset, Israel’s parliament at the time. reported local media.
Business and factory owners in December pressed lawmakers to allow between 8,000 and 10,000 Palestinian workers to return to work in Israeli settlements and businesses in the West Bank.
In comments reported by the Times of Israel, Raul Sargo, president of the Israel Construction Association, told parliament: Some facilities have been closed, impacting Israel’s economy and housing market. ”
Israel’s agricultural sector also relies heavily on foreign workers, particularly those from Thailand, of which at least 10,000 were killed and many Thai farm workers taken hostage after the October attacks. They are now leaving the country.
Asked about the tools banks have at their disposal to respond to the possibility of war escalating to northern Israel and the Lebanese border, Yaron stressed the focus would be on preventing financial instability.
“Everyone hopes that doesn’t happen. If it does, your thinking is about financial stability,” the banker said. “It means the overall view on the interest rate process…expansionary monetary policy will probably stop and we will use the types of tools that we have been using in the past, such as FX, but we will need to I hope you don’t go there.”
Yaron added that he was optimistic about his country’s ability to cope with shocks, having grown accustomed to war for decades.
“I think we still need to remember that Israel is a dynamic economy,” he said. “It has shown that it is resilient and can bounce back… In almost every military event, it has shown that it can recover and grow rapidly. In fact, homeland security, economic I think there’s a growing demand for it from academia.”And hopefully, if there are milder states the next day and a better environment, those will bring new opportunities as well. ”