In September, Israel's business sector exhibited signs of growth, with the Melnick State of the Economy index registering a 0.2 percent increase, offering a glimmer of hope for the nation's economic recovery. However, Israel’s recent declaration of war on Hamas following the terrorist organization’s deadly shock attack in early October has cast a shadow of uncertainty over the stability of this nascent growth.

The Melnick State of the Economy index is a key indicator of Israel's economic performance. Its reported uptick in September is particularly significant given the ongoing economic challenges faced by Israel's business sector in recent months. The results in August had reported a modest 0.1 percent increase, mirroring the lukewarm growth experienced in July.

The components of the most recently published report detail noteworthy movement over the past few months. In August, the industrial production index demonstrated a significant increase of 5.5 percent, indicating a notable expansion in manufacturing and production activities. The revenue generated by businesses in the commerce and services sector also saw a noteworthy rise, with a 2.3 percent increase in the same month.On the flip side, the import index experienced a decline of 2.2 percent in September, following a 1.9 percent decrease in August. This suggests a reduction in the volume of imported goods and materials into Israel during these periods.Additionally, the number of employment positions within the business sector showed a decrease of 0.6 percent in July, following a 0.3 percent decrease in June. This implies that there were fewer job opportunities available within businesses during these specific months, potentially contributing to employment challenges in the labor market.

Looming uncertainty

While the September results provided a glimmer of hope for Israel's business sector, the sudden escalation of conflict resulting from Hamas’ attack on October 7 is poised to disrupt this fragile growth. The implications are significant, as the conflict has created a labor shortage, with businesses struggling to find available workers due to the IDF calling up over 300,000 reservists to active duty to support the war efforts.