Financial markets indifferent as Galilee burns

Anyone who sees images of northern Israel on fire will find it difficult to get them out of his mind. Acres of farms, ranches, chicken runs, beehives, pastures and vineyards were burned to the ground. People saw their life's work destroyed. Small businesses in the north have been collapsing for months. Technology companies have fled to the center. Since October 7, tourism has been cut off, and the industry is moving along.

It will take decades to rehabilitate agriculture in the region. The factories in which millions had been invested to make them a harbinger of the future were destroyed. After a decade of unprecedented economic growth in the Upper Galilee, the blow it has received sometimes seems fatal. Shooting became a daily routine. “Everything is burned, physically and psychologically,” says a resident of Kibbutz Kfar Sold in the Hula Valley who saw the fire burning in Kiryat Shmona yesterday.

This fire has huge economic costs. Many families suddenly fell below the poverty line. According to figures presented by Dr. Ayala Cohen of Tel Hai College at the Galilee Panhandle Conference. 82% of self-employed workers in the region reported moderate to high damage to their income. 73% reported that the economic situation is bad. 39% of salaried employees reported this. In the regional cluster of Eastern Galilee, there are 8,227 people looking for work, half of them on unpaid leave, and this is just one small indicator.

Haim Kamen, CEO of refrigeration company Kiror Galil, may find himself unprofitable for the first time in the history of the plant, located in the northern part of Kiryat Shmona. The company has lost an important client, Pre Galil Foods, which has announced its closure, and there is fear for the future, as many kibbutzim in the area are still being evicted, and there is no certainty about what will happen to their crops.

Besides the damage to agriculture and industry, according to the head of the Upper Galilee Regional Council, Giora Salz, 95% of the companies that were present in the Upper Galilee in recent years, many of them working in the areas of food technology, agricultural technology and high-tech, have left for Upper Galilee. In the middle of the country, it is doubtful that they will return. Many people are still on reserve duty in the IDF and in the security services. There is not enough protection. He describes children lying on the ground and covering their heads with their hands when their settlements are fired upon as a daily occurrence.

Despite the disaster, it seems that financial markets in Israel have not moved. The shekel has been fairly strong recently. After rising above NIS 4/$ at the start of the war, it is now around NIS 3.7/$, while the main Tel Aviv Stock Exchange indices have risen nearly 3% in the past month.

Modi Shafrir, chief financial markets strategist at Bank Hapoalim, explains that the markets seem to have become accustomed to the war in the north, although this is difficult to say. “As long as we do not see a deterioration into all-out war and shooting into the center of the country and other areas, we will see containment by the financial system,” he says.

Shafrir explains this by the fact that the Israeli economy seems to be continuing to function. “As long as markets are functioning properly, fighting in the north will have limited impact. On the other hand, any attack on the center of the country, which would drag us into an all-out war, would be vulnerable to damage.” “It brought a strong reaction from the markets.”

Yoni Fanning, chief strategist at Mizrahi-Tefahot Bank, says that the market is looking for reasons for optimism from the southern front, and therefore “the reaction to what is happening in the north is only partial.” Fanning explains that despite the harsh events in the north of the country, the markets are currently seeing a low probability of a large-scale regional war in the north. “After the April attack by Iran and the Israeli response, markets do not expect an all-out war in the Middle East.”

The oil market tells a similar story. If the price of Brent crude oil was around $90 per barrel at the time of the Iranian attack, it is now in continuous decline, and has reached $76 per barrel, its lowest level in five months.

Fanning explains that despite the escalation, the fear of all-out war has receded. Moreover, he says, Israel's financial situation is of greater concern to markets. The latest estimate from the Ministry of Finance is that the fiscal deficit will exceed original projections by about NIS 55 billion, meaning that debt:GDP targets will not be met.

Published by Globes, Israel Business News – en.globes.co.il – on June 5, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.