According to the report, the 50% decline in sector activity deducted 3% from GDP in the fourth quarter (Reuters)

A recent report issued by the Bank of Israel reveals the profound impact of the construction market decline on the Israeli economy, especially in the fourth quarter of 2023. The report highlights the dire situation caused by the severe shortage of workers, which could cause a significant decline in annual GDP of about 25%. One billion shekels.

The report stated that “the 50% decline in sector activity... deducted 3% from the gross domestic product in the fourth quarter,” emphasizing the major blow that the economy received. The report estimated that the direct damages resulting from the downturn amounted to NIS 14 billion, double the Finance Ministry's initial estimates.

The repercussions extend beyond direct losses, with indirect effects expected to emerge gradually. The report warns that prolonged low levels of activity in the construction sector could perpetuate negative impacts, which could harm the housing market for a long time.

Palestinian workers go to their workplaces inside via the Taiba checkpoint in the city of Tulkarm between the West Bank and Israel (Al Jazeera)

Despite the gradual recovery observed at the end of 2023 and until 2024, challenges remain, according to the report. The report highlights disparities in site closures, particularly affecting small projects and non-residential construction. Furthermore, it calls for a re-evaluation of policies related to preventing the employment of Palestinian workers, noting the ongoing constraints on supply and potential geopolitical ramifications.

Furthermore, the report addresses the economic complexities of the industry, noting increased risks due to financing pressures and reduced income for construction companies. Worryingly, financing expenses rose alongside a sharp rise in outstanding loans, indicating increasing industry vulnerability.

Looking ahead, the report raises concerns about the development boom in Israel's southern and northern regions, stressing the need for policies that support security and demographic growth. It stresses the importance of investing in infrastructure and services to attract residents and mitigate migration trends.

Source: Israeli press