BoI: Construction market decline cut Q4 GDP NIS 25b

• Published date: 01 April 2024
• Author: Yuval Nisani
• Publication title: Globes (Rishon LeZion, Israel)

"The 50% decline in activity in the sector, which, before the war, represented 6% of total GDP, subtracted 3% from GDP in the fourth quarter (0.75% of annual GDP)," the report states, and continues, "The sector consumes raw materials and construction products from many industries in Israel, such that its low level of activity is liable to harm activity in these industries. The indirect effect of the 50% decline in its product over a quarter will probably result in a further 2.4% decline in total quarterly product (0.6% of annual product)."

This means that the direct damage from the decline in activity in the industry in the fourth quarter is NIS 14 billion. This is double what the Ministry of Finance estimated at the beginning of the year.

As far as the indirect damage is concerned, the Bank of Israel says that it may not become apparent immediately. "The indirect effect will not necessarily be immediate; it could take time to emerge, as the low demand in the construction industry permeates through to other sectors. If the level of activity in the industry continues to be low, the housing market is liable to be harmed for a long period."

Recovery in 2024

More encouraging is the fact that as the war has gone on, the degree to which the construction industry has shut down has lessened. "In the first weeks of the war, construction sites were shut down on the instructions of the Home Front Command and local authorities. Towards the end of 2023, 28% of residential construction sites were still closed. At the beginning of 2024, the recovery continued, and at the end of February only 17% of residential construction sites were closed."

Not all construction sites are equal, and the report states that the ones that remain closed tend to be the smaller ones, which means that the percentage of sites that are closed does not translate directly into the percentage of housing units construction of which has been retarded. Moreover residential construction sites have reopened more quickly than non-residential sites. According to the Central Bureau of Statistics, at the end of December, 53% of non-residential construction sites were inactive, versus 36% of residential sites.

The report says that the employment of Palestinians on construction sites in Israel should be reconsidered." It would appear that some of the problems of restrictions on the supply of workers because of government decisions will not be solved soon, and require reexamination of the long-term policy on...