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Fighting Fails to Sink Israeli Economy, So Far

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Fighting Fails to Sink Israeli Economy, So Far

Middle East

Fighting Fails to Sink Israeli Economy, So Far

Fighting Fails to Sink Israeli Economy, So Far

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Weeks of fighting have taken a heavy toll on certain sectors of the Israeli economy. But growth is still expected to be a healthy five percent this year, and the stock market is only down slightly. But if it drags on, economists say consumer confidence and foreign investment could both suffer.

RENEE MONTAGNE, host:

Israeli officials say the three weeks of war with Hezbollah guerrillas in Lebanon have cost the Israeli economy an estimated $650 million. The Israeli economy is still in good shape, and economists say that as long as the war ends soon, the overall damage will not be lasting.

At the same time, certain sectors like tourism have been hit hard. NPR's Linda Gradstein reports.

LINDA GRADSTEIN reporting:

Ten years ago, Suzy and Mitch Pilcer opened Tzipori Village, five guesthouses with Jacuzzis in the lower Galilee, near the Christian town of Nazareth.

Ms. SUZY PILCER (Tzipori Village): Very beautiful. Fig trees, pomegranates, olives, grapes, wheat, barley, it's all here. It's an incredibly beautiful place. We have big huge skies and lots of space.

GRADSTEIN: July and August are their high season, accounting for about half their annual income. Suzy says they're usually fully booked.

Ms. PILCER: It's quite happy during the month of August. It's very busy and lots of kids, and now its completely empty.

GRADSTEIN: The Israeli government has promised to compensate residents of northern Israel for lost workdays and damage to their businesses. But Suzy says getting compensation will be a bureaucratic nightmare, and probably won't even cover their operating costs.

Her husband, Mitch, has spent the past two weeks on Israel's border with Lebanon, doing army reserve duty. Suzy says she hopes the army will at least cover the costs of his gas back and forth.

Northern Israel has been hit hard by the war. About a third of the one million residents of the area have fled to relatives or hotels further south. Businesses have closed. Israel's third-largest city of Haifa has been essentially shut down for most of the past three weeks because of intermittent Hezbollah rocket fire.

Bank of Israel Governor Stanley Fischer, formerly a senior official at the International Monetary Fund, told the news conference that the war is costing the Israeli economy about $220 million a week. He said if it continues for a month, Israel's gross domestic product will decrease by .7 to .9 percent. Growth is still estimated to be close to 5 percent this year, as it was last year. That followed several years of recession.

But Fischer said if the war continues much past next week, the economic costs will begin to rise. The call-up of 30,000 reserve troops will also have a negative economic effect.

Mr. STANLEY FISCHER (Governor of the Bank of Israel): (Through translator) It of course is affecting the quality of life in northern Israel, those who suffered from the rockets and the suspension of most economic activity in the north. But if the fighting ends in a week or two, the government might not have to raise taxes.

GRADSTEIN: Fischer's warning of a possible tax hike raised more than a few eyebrows here. Middle and upper-class Israelis already pay about 60 percent of their salaries in taxes.

For the moment, the war is scarcely felt outside northern Israel. In Tel Aviv, beaches and restaurants are packed. Tel Aviv is Israel's financial capital, and perhaps because it's so far from the fighting, both the stock market and the shekel/dollar exchange rate have already regained the losses they suffered in the first week of fighting.

David Rosenberg, a commentator on economics, says psychological attitudes have a lot to do with it.

Mr. DAVID ROSENBERG (Commentator): At this stage it has both a psychological impact and an economic impact. Every indication is that the public is behind what Olmert is doing. He has the financial and the psychological wherewithal to fight the war to its conclusion, which wasn't necessarily obvious in earlier confrontations in Lebanon.

GRADSTEIN: Rosenberg says that so far foreign investment has not been harmed. He said the international business community believes the war will end soon, and the Israeli economy will rebound. But if the conflict drags on, both foreign investment and Israeli consumer confidence could drop, and then the economic damage will be much greater.

Linda Gradstein, NPR News, Jerusalem.

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