'We need a miracle' - Israeli and Palestinian economies battered by war

Jerusalem's Old City should be teeming with visitors at this time of the year

More than six months into the devastating Gaza war, its impact on the Israeli and Palestinian economies has been huge.

Nearly all economic activity in Gaza has been wiped out and the World Bank says the war has also hit Palestinian businesses in the occupied West Bank hard.

As Israelis mark the Jewish festival of Passover, the much-vaunted "start-up nation" is also trying to remain an attractive proposition for investors.

The cobbled streets of Jerusalem's Old City are eerily quiet. There are none of the long queues to visit the holy sites - at least those that remain open.

Just after Easter and Ramadan and right in the middle of Passover, all four quarters of the Old City should be teeming with visitors.

Just 68,000 tourists arrived in Israel in February, according to the country's Central Bureau of Statistics. That's down massively from 319,100 visitors in the same month last year.

While it may be surprising that any visitors pass through Jerusalem at a time of such tension, many of those who do are religious pilgrims from across the globe who will have paid for their journeys well in advance.

Zak's Jerusalem Gifts was one of only a handful of stores on Christian Quarter Street in the Old City, which is situated in occupied East Jerusalem, to have bothered opening up on the day I passed by.

"We're only really doing online sales," says Zak, whose business specialises in antiques and biblical coins.

"There are no actual people. The last week, after the Iran-Israel escalation, business dropped down again. So we are just hoping that after the holidays some big major miracle will happen."

It's not just in Jerusalem's Old City that they need a miracle.

Some 250km (150 miles) further north, on Israel's volatile border with Lebanon, almost daily exchanges of fire with Hezbollah since the war in Gaza began have forced the Israeli army to close much of the area and 80,000 residents have been evacuated further south. A similar number of Lebanese have been forced to leave their homes on the other side of the border.

Agriculture in this part of Israel is another economic sector that has been hit hard.

Ofer "Poshko" Moskovitz isn't really permitted to enter his avocado orchard in the kibbutz of Misgav Am because of its proximity to the border. But he occasionally ventures in anyway, walking wistfully among the trees, to gaze at all of his "money falling on the ground".

"I must go to pick in the orchard because it's very important for the next season," Poshko says. "If I don't pick this fruit, the next season will be a very poor one."

He says he is losing a lot of money because he can't pick the avocados - around 2m shekels ($530,000; £430,000) this season, he says.

Israeli agriculture is another part of the economy hit hard by the war

Although they provide a living for thousands of people, agriculture and tourism account for relatively small parts of both the Israeli or Palestinian economies.

So what does the wider picture show?

Last week ratings agency S&P Global cut Israel's long-term ratings (to A-plus from AA-minus) reflecting a loss of market confidence after increased tensions between Israel and Iran and concerns the war in Gaza could spread across the wider Middle East.

That loss of confidence was also reflected in falling Israeli GDP - the total value of goods and services produced in the economy - which decreased by 5.7% in the last quarter of 2023. Many Israelis though say the country's renowned high-tech and start-up sector is proving to be more "war-proof" than expected.

The coastal city of Tel Aviv is only 54km from Jerusalem. More pertinently, perhaps, it's less than 70km from Gaza.

At times, you'd be forgiven for forgetting - however momentarily - that Israel is embroiled in its longest war since independence in 1948.

People in Tel Aviv enjoying the beach

Families make the most of the early summer sun to play in the surf, couples eat lunch in the many open-air beach restaurants and young people strum away on guitars on the green spaces between the coastal road and the Mediterranean.

The backdrop is a city that is economically active and physically growing fast.

"They joke that Israel's national bird should be the crane - the mechanical kind!" says Jon Medved, founder and CEO of the online global venture investment platform Our Crowd.

An engaging character with an overwhelmingly upbeat view of his world, Medved tells me that, "in the first quarter of this year, almost $2bn was invested in Israeli start-ups… We're having one of the best years we've ever had. People who are engaged with Israel are not disengaging."

Medved insists that, despite everything, Israel is still the "start-up nation" and a good option for would-be investors.

"There are 400 multinational corporations that have operations here. Not a single multinational, has closed its operation in Israel since the war."

To an extent, Elise Brezis agrees with Mr Medved's assessment.

The economics professor at Bar-Ilan University near Tel Aviv acknowledges that despite the last quarter's GDP figures, Israel's economy remains "remarkably resilient".

"When it comes to tourism, yes, we have a reduction in exports. But we had also reduction in imports," says Brezis. "So in fact, the balance of payments is still okay. That's what is so problematic is that from the data, you don't really feel that there is such a terrible situation in Israel."

But Prof Brezis detects a wider malaise in Israeli society that isn't reflected in economic data.

"Israel's economy might be robust, but Israeli society is not robust right now. It's like looking at a person and saying, 'Wow, his salary is high,' [...] but in fact he's depressed. And he's thinking, 'What will I do with my life?' - That's exactly Israel today."

If the outlook in Israel is mixed, then across the separation barrier that divides Jerusalem and Bethlehem the view from the Palestinian side is overwhelmingly bleak.

Tourism to the Church of the Nativity in Bethlehem "stopped immediately" after Hamas attacked Israel last October

Tourism is especially important to the economies of towns like Bethlehem in the occupied West Bank.

While some people are still heading to Jerusalem's sites, in the place where Christians believe Jesus was born tourism "stopped immediately" after 7 October last year, says Dr Samir Hazboun, chairman of Bethlehem's Chamber of Commerce and Industry.

That's when Hamas attacked Israeli communities near Gaza, killing about 1,200 people, mainly civilians, taking about 250 hostages and sparking the current war.

There's huge dependence and reliance on Israel's economy here - but Israel virtually closed off the landlocked West Bank after 7 October and this has had a disastrous impact on the life and work of many Palestinians, Dr Hazboun says.

"The Bethlehem governorate right now is closed," he says. "There are around 43 gates [in the Israeli security barrier] but only three are open. So with between 16,000 and 20,000 Palestinian workers from our area working in Israel, immediately, they lost their income."

The chamber of commerce says that the revenues from local Palestinians working in Israel amounted to 22bn shekels ($5.8bn) annually.

"You can imagine the impact on the economy," says Dr Hazboun, who is particularly concerned for the prospects for younger Palestinians the longer the war continues and more the Israeli and West Bank economies decouple.

"The younger generation now are jobless, they are not working. Many of them are talented people," he laments.

"In June I'm expecting around 30,000 new graduates from the Palestinian universities. What they will do?

In Gaza itself the economy has been completely destroyed by six months of war. Israel's relentless aerial bombardment and ground operations have killed 34,183 people, mostly women and children, according to the Hamas-run health ministry.

Unlike in some parts of Israel, where there is optimism around being able to ride out the storm and continue attracting investors, in the West Bank and Gaza there is little hope things will return to any kind of normal.