Treasury chief economist: Little harm to economy

Dr. Michael Sarel estimates that growth fell between 2% and 3% on an annualized basis during Operation Pillar of Cloud.

"All sorts of stories are going around telling about possible damage from Operation Pillar of Cloud and I suggest not paying them any attention because they include elements that were not part of the Operation, such as long-term equipment purchase," Ministry of Finance head of economics and state revenues administration Dr. Michael Sarel told "Globes" today.

In his words, the costs can be divided into several categories: firstly the damage to property which is being handled by the Tax Authority's damages fund. "Globes" revealed yesterday that senior Tax Authority officials estimate that this bill is a relatively small NIS 30-40 million. Secondly, Sarel said, there are military expenses, which have no direct budgetary implications, such as paying for extra soldiers called up for IDF reserve duty.

Sarel explains that for comparison the Second Lebanon War in 2006 saw a 7% of fall in GDP growth during the fighting in annualized terms, so that instead of 5% growth there was a 2% contraction. However, immediately after the war, by the fourth quarter of 2006, and first two quarters of 2007, there was very rapid growth that compensated for the "loss of production." Sarel also points out that the Second Lebanon War lasted five weeks compared with the eight days of Operation Pillar of Cloud.

He said, "The intensiveness of the harm to the economy seems very much lower. I'm speaking about less than half the damage of the Second Lebanon War. That is to say a fall of 3% and perhaps even 2% in growth. Even if the Operation was to carry on for another five weeks, a very pessimistic scenario, the impact would be much smaller and not dramatic. The number of employees and enterprises hit by the fighting is much smaller, the ports are open, Intel and Israel Chemicals (TASE: CHIM) are operating as usual and thus exports aren't affected. So the harm is very small and is not a macro-economic problem."

Dr. Sarel expects the effect of the Gaza conflict to be felt in the fourth quarter of 2012 and to have dissipated by the first quarter of 2013.

Published by Globes [online], Israel business news - - on November 22, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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