Israel Economy Hard Pressed, Not Crushed over Gaza Rockets

The cancellation of European and U.S. flights to Israel due to rocket fire is further harming tourism in a region already paying for fierce fighting in Gaza, experts say.

But while the hospitality trade and small businesses are suffering, the broader Israeli economy is unlikely to be affected by the conflict with Hamas, in which more than 1,700 rockets and mortar shells fired from the Palestinian territory have so far hit southern and central Israel, they say.

The U.S. Federal Aviation Administration banned American airlines from flying to Tel Aviv's Ben Gurion airport for at least 24 hours from Tuesday, and the European Aviation Safety Agency advised all carriers to avoid Tel Aviv "until further notice".

The Israeli Airports Authority, meanwhile, announced on Wednesday it would be opening the Ovda military airport, 60 kilometers north of Israel's Red Sea resort of Eilat, as an alternative to Ben Gurion for international carriers.

Treasury and tourism officials said it was too soon to determine the impact of the flight ban, but even before the move the fighting had been seriously dampening Israel's economy.

Former finance ministry director general Doron Cohen said the Israeli economy would remain down by 20 percent as long the fighting continued.

Most of the losses were being "suffered by small and medium-sized businesses in the south and the tourism industry nationwide", Cohen told Haaretz newspaper Monday.

Head of the Israel incoming tour operators association, Ami Etgar, told AFP they anticipated a shortfall of 35-40 percent in their July-August income.

"July and August have already been very negatively impacted, if there will be no flights to Israel the situation will surely worsen," he said.

Tens of thousands of Israelis have also been called up for reserve service, further slowing down operations and internal tourism.

And hotel bookings plummeted to 30 percent compared to the 70-80 percent typical in the summer, director-general of the Israel Hotel Association, Shmuel Tsurel, said.

"The loss of income to the entire tourism industry over July-September will reach over 2.2 billion shekels ($644 million, 478 million euros), of that over 500 million shekel in losses to hotels," he said in a statement.

But Israel's macro-economy will most likely not be harmed by the current conflict, according to Rafi Melnick, a member of the Israeli central bank's monetary committee.

"The soft and immediate underbelly of the Israeli economy is always tourism, whenever such events happened in the past there were declines in the numbers of incoming tourists," he told Agence France Presse, noting flare-ups with Gaza and Hizbullah in recent years.

Melnick, a professor of economics at IDC college, near Tel Aviv, noted that previous short-term conflicts did not show up in any of Israel's main economic indicators, "not in the market's growth, in investments, in interest in high-tech, in exports".

"The Israeli economy has over the past years developed a certain resilience," said Melnick. "While these events are difficult from the humanitarian perspective, they don't have significant impact on the macro-economic picture."

"You can see that in the financial markets, which are always forward-looking," he said, noting on Wednesday the normal behavior of the Israeli stock market and currency, both of which were slightly rising.

The finance ministry and the trades union federation meanwhile said Wednesday they had reached a formula to compensate businesses located up to 40 kilometers (25 miles) from the border with Gaza, where the bulk of the rockets and mortars are landing.

But even the battered tourism industry could bounce back to a certain extent if Israel invested in marketing once the violence ends and ahead of the autumn, when the main bulk of organized tourists arrive in Israel, Etgar said.

"Tourism to Israel had been on the rise, the operation has put an end to that. We still don't know how powerful this will be, it depends on when and how it ends, and how much Israel will invest in marketing," he said.