The Israeli economy is weathering the escalating conflict in Gaza as if it was a "bad winter storm," the deputy governor of the country's central bank said Wednesday.
Montreal-born Nadine Baudot-Trajtenberg visited Ottawa this week to meet with counterparts at the Bank of Canada after taking up her central banking job this spring. Ms. Baudot-Trajtenberg had to scramble to rebook her return to Tel Aviv on Wednesday night after Air Canada cancelled flights into Ben Gurion Airport when a rocket fired from Gaza landed nearby.
She said the Israeli economy has shrugged off the increased political risk, as evidenced by resiliency in the international bond market, the stock market and the foreign exchange business.
"At this point, it is still a small impact. For Canadians, I would think of it in terms of a bad winter storm," Ms. Trajtenberg said. "A bad winter can have a temporary impact only, but it can have a permanent impact if it happens at a time the economy is depressed. The Israeli economy is not depressed."
But the ultimate price "depends on how long this is going to last," she added.
The Israeli economy has slowed somewhat from the torrid pace experienced immediately after the global recession, but is still growing at nearly 3 per cent a year, with the 6.4-per-cent unemployment rate near an all-time low, the labour participation rate growing, and inflation and government and household debt firmly under control.
Ms. Trajtenberg said previous conflicts – including the 2006 war against Hezbollah in Lebanon – had only modest and temporary economic impacts. She said it is difficult to gauge the impact on an ongoing crisis, but added the country has significant "shock absorbers" to help its economy cope. Those include a current account surplus that has mushroomed as the country produced offshore natural gas and used it to displace imported crude oil in its electricity sector.
"But I'm being careful because every event is slightly different … This is the first time in 23 years that we have potential threats on the centre of economic activity, including the airport."
The most recent time was during the first Gulf War, when Saddam Hussein's regime in Iraq fired Scud missiles into Israel. The country is now protected by an anti-missile system known as the Iron Dome, but, while it has been remarkably successful, it does not stop all missiles being fired from Gaza.
Ms. Trajtenberg acknowledged the violence and cancellation of flights will have an impact on tourism, though she said it would be short-lived if the violence does not escalate. And she said summer tourists are more likely to have a "special relationship" with Israel, and be less inclined to change plans than sun-seeking tourists in winter.
Until the Gaza crisis erupted, the tourism industry was headed for a record year with arrivals up an annual 17 per cent in the first five months. Tourism accounts for 7.3 per cent of Israel's economy and employs nearly one in 13 of the work force, the World Travel & Tourism Council says.
Now about 30 per cent of those expected this month have decided to stay away, Ami Etgar, general manager of the Israel Incoming Tour Operators Association, told Bloomberg wire services. Hotel occupancy is down to as low as 30 per cent in some areas, the Israel Hotel Association estimates.