The ongoing conflict has not only affected immediate construction activities but has broader implications for Israel's economic stability and growth.
The labor shortage in the construction sector may lead to increased costs and project delays, further straining the economy during a critical period.
The Bank of Israel's proactive stance indicates a recognition of the interconnectedness of the construction sector with overall economic health, suggesting that any recovery efforts must address labor and financial constraints.
If the conflict continues without resolution, further economic downturns may occur, particularly in the construction and real estate sectors.
The labor market may see gradual improvements if the government successfully negotiates the return of Palestinian workers, potentially stabilizing the construction sector.
Increased scrutiny and risk management by banks could lead to tighter lending standards, impacting the availability of loans for real estate development.
The Bank of Israel has issued a warning to senior bank officials regarding their exposure to the construction and real estate sectors amid ongoing conflicts in Gaza and Lebanon. This caution comes as the Finance Ministry has revised its economic growth forecast for the year from 1.1% to 0.4%, reflecting the severe impact of the war on the economy.
The construction sector is facing significant challenges, including a labor shortage and rising costs of financing and materials. The Israeli government's restrictions on Palestinian workers, who constituted a substantial portion of the workforce, have exacerbated these issues. Only a fraction of the 150,000 Palestinian workers barred from entering Israel have been replaced by foreign labor.
Despite the Bank of Israel not imposing strict lending restrictions, it has emphasized the necessity for banks to conduct updated risk assessments and manage their exposure to the real estate sector carefully. The total value of construction and mortgage loans held by Israel's five largest banks is approximately 900 billion shekels ($242 billion).
Bank Governor Amir Yaron has highlighted the macroeconomic significance of the construction industry's challenges and has urged the government to facilitate the return of more Palestinian workers to address labor shortages. He anticipates that while the conflict may persist into early next year, there could be a reduction in hostilities within a month.
