The Manufacturers Association of Israel is concerned about the figures published earlier this week by the Central Bureau of Statistics, which showed negative per capita growth of 0.4% in the second quarter, when GDP grew by 1.2% on an annualized basis.
There was a 1.9% fall in business production in the second quarter compared with the first quarter and by nearly 5% from the corresponding quarter of last year. In addition exports of goods and services fell by more than 7% on an annualized basis.
The Manufacturers Association says that the situation is even more worrying than the official figure indicate, with the number of employees shrinking and production, product and as mentioned exports falling due to the war.
Between January and June 2024, industrial exports fell 4.7%. The Manufacturers Association biggest concern is that the worst is yet to come and it finds it difficult to be optimistic about a near recovery. According to the Manufacturers Association, industrial production constitutes about 12% of the total GDP in Israel and the damage to it is also reflected in macroeconomics. The industries hit includes electronics, software, textiles, chemicals, pharmaceuticals, environmental quality, food, metal and electrical, and consumer and construction products.
Fear of a lost year
Israel Manufacturers Association president Ron Tomer said, "The decline in GDP becomes a much broader problem when you realize that to get back to what it was in the past will not happen quickly, not to mention growth to narrow the swelling deficit. Companies are not quickly returning to do business with Israel, the war and the pessimistic sentiment around the Israeli economy, companies are moving to other places, which causes the fear that 2025 will in many cases be a lost year. We are worried that even after the war they will not necessarily return here."
According to the Manufacturers Association, Israel's export volumes are more similar to their level about three years ago. Total industrial exports have fallen from $5 billion a month to only $4.4 billion as of today. The Manufacturers association stresses that this is the situation even before the end of the war, and that "the situation could become even worse."
In response, the Ministry of Economy and Industry notes that while industrial exports have weakened in the first half of 2024, but the data are not "shocking" considering Israel's situation. The figures for the last quarter of 2023, the ministry says, were better than in 2022, which was an economically strong year and was very good for exports.
The ministry also insists that a recovery in industrial production is on the horizon.
Shortfall of workers for factories
Since the start of 2024, the number of workers in the industrial sector has fallen by 1.4%. In the final quarter of 2023 the number of workers fell 2.3% compared with the final quarter of 2022. The Manufacturers Association claims that it is not about the efficiency of the industrial sector - but the consequences of the war. According to Tomer, these are not workers who simply switch to another profession, but "evacuees from the north and south and reservists, people who are not there for a long time and are absent from factories and industries."
The shortfall of workers leads to damage to productivity and wage increases. The data presented by the industrialists show that productivity did not increase at all this year, but they explain that the situation is worse than it seems at first glance. "The zero growth figure is a bit confusing and looking deeper we see our situation has worsened. The comparative figure was indeed zero, but there was a retreat in industrial output and a similar decrease in employee hours."
Complications surrounding the budget
Uncertainty in the industry is also increasing due to delays in preparing the 2025 budget. "The uncertainty is festering and harming the economy's ability to recover. The deficit is increasing and we are expected to enter the fourth quarter of the year without an organized budget for 2025. During such a crisis, one of the worst the country has known, no one has time to waste and we must convey to investors that it is business as usual to investors," the Manufacturers Association says.
Published by Globes, Israel business news - en.globes.co.il - on August 21, 2024.
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