The global damage from the Russia-Ukraine war is estimated at about 1.5% of the global GDP, but it yields the Israeli economy, it is unpleasant to say, very many benefits. From the defense exports that jump dramatically to levels we never dreamed of before, through a very large jump in the export of Israeli natural gas to Europe, to a huge wave of immigration from Russia and Ukraine that reaches Israel, which brings high-quality gas and also supplies high-tech gas.
The research department of theOECD issued an estimate in June that global growth will be affected in relation to the pre-war growth forecasts at a rate of approximately 1.5% in 2022 and Europe will be affected by approximately 1.7%. Estonia, for example, will lose 3.2% in relation to the original growth forecast for this country, Germany will lose 2.2%, Italy 2.0%, Greece 2.0%, Finland 1.9%, Spain 1.5% and even the USA is affected by a rate of 1.3%, all of this in relation to the forecasts The growth before the war. Of course, exporters of energy sources (coal, gas, oil) around the world are only profiting. But in my estimation, the Israeli economy is also, unpleasant to say, definitely going to benefit.
Defense exports jump
At the end of 2019, the Germans raised the ire of Trump. His demand from them to raise the scope of Germany’s investment in defense spending to a ratio of 2% of the GDP, as required by being a member of NATO, was in fact not met. Defense, amounting to only 1.3% of its GDP, answered Trump that they would reach this goal… by 2031.
Following their refusal in fact, a hot-tempered Trump threatened the Germans with trade sanctions. Trump demanded that the Germans, rightly from an American point of view, increase their defense spending in order to strengthen themselves and NATO and not rely only on the US investing huge sums in the alliance and in the defense of Europe. On the other hand, bending the hand of the Germans, the largest European country in NATO, is also problematic. Of course, the threat did not materialize and the Germans did not increase their defense spending.
Surprisingly, at the beginning of 2022, Putin solved this dilemma for the Americans. About three months after the start of the fighting between Russia and Ukraine, the German government announced that it would increase its defense budget by 100 billion euros. Defense Minister Christine Lambrecht called it “an urgently needed step, we can equip our soldiers as they deserve and as they urgently need to ensure national defense and the alliance (with NATO)”. This is an increase equal to 2.5% of the German GDP, apparently Will spread over several years, but will definitely boost Germany above the 2% level, the level that Trump demanded of them.
Of course it’s not just the Germans. All Eastern European countries now feel directly threatened and Central and Western European countries have also completely lost their complacency. And the Israeli defense industries are already starting to benefit from this, hugely. The war in Ukraine has led many European armies to announce that they are re-arming, and they see Israel as an arms industry that complements what they lack: creativity, computing, innovation and everything related to digitization and software.
Israel is the tenth largest defense exporter in the world, but following the opening of the Emirati, Moroccan and Bahraini markets, against the background of the Abraham agreements, it will probably rise a place or two. But the biggest buyers have always been the Europeans (and India). Israeli arms sales have already reached a new record of 11.3 billion dollars in 2021, but 2022 and beyond will be much better.
Israel has a huge advantage in its sales basket. Suicide drones and precision missiles star in this war and have even changed the course of the battles, mainly in the smuggling of the Russian army from the Kyiv region back to Belarus, but also now as part of the battles in the Donetsk region. Israel’s weapons systems are considered the most advanced in the world in these fields and have proven themselves not only in the systems that Israel conducts but also In the second Nagorno-Karabakh war between Azerbaijan and Armenia, in which Azerbaijan won largely due to the technological advantage that Israeli weapon systems gave to its army, there is also a huge interest in anti-missile missiles and armor protection systems (Raphael wind jacket).
Since the beginning of the fighting, the head of the German Air Force has already announced that they are interested in purchasing the Israeli Arrow 3 system, and all approvals have already been received from the US and Israel for the sale of the system to Germany. From Israel’s point of view, this will be the first sale of the system to a foreign country, and the aerospace industry will benefit from this through the MLM plant The developer and manufacturer of the Arrow interceptors and the Elta division that develops the radar detection system as well as Elbit that develops the fire management system. Rafael’s German subsidiary, Dynamit Nobel Defense (DND), won a large contract to supply anti-tank rocket launchers to the German army. The Czech Republic has announced that it will place another order for the “Heron” UAV of the Israel Defense Forces. They also expect short delivery times. Other Eastern European countries are in the process of signing agreements with Israeli defense companies for a variety of weapons systems, not to mention the sale of non-lethal military equipment to Ukraine (non-lethal so as not to upset the Russians).
In fact, in the Israeli defense industries there is a celebration like never before and this will have positive consequences for the growth of the economy. This is a growing backlog of orders where the owners are European countries, mostly established, who know and are willing to pay well for Israeli products that have been proven in combat conditions. They also want it tomorrow morning, if possible, because the Russian bear might develop another appetite.
Natural gas exports jump
Since the beginning of the sanctions on Russia and especially with the decrease in the volume of gas transported by the Russians to Europe, as is well known, the European fear of a shortage of natural gas has increased greatly, especially towards the winter. Against this background, the volumes of natural gas exports from Israel to Egypt and from there to Europe have greatly increased. The gas is transported from the Tamar and Levitan reservoirs, through existing pipelines that reach the Egyptian port city of Port Said and finds its way to the gas liquefaction plants LNG located not far from the port. After it is liquefied, it is loaded onto marine tankers whose destination is European ports along the Mediterranean Sea. And the export numbers are soaring. Europe desperately needs natural gas from any source and Egypt and Israel are happily cooperating with this huge new source of demand. It can be assumed that Europe is becoming a source of continuous demand for Israeli gas and any amount that Israel can transfer through the existing infrastructure will be happily swallowed by the European countries.
This commercial bonanza also strengthens the geopolitical connection between Israel and Egypt. Egypt, whose economy is in a precarious state, needs every source of dollar income and the profitability of gas exports jumps following the sudden increase in its price (about 250% or more compared to before the war). No wonder Egypt has become such an important mediator that also tries to maintain peace in the Gaza Strip. From an economic point of view, they need Israeli gas just as much and probably even much more than Israel needs to export it to them, so it is better for them to have peace in the Gaza Strip as well.
A huge surge
Immigration to Israel from countries like Russia and Ukraine is an economic factor that contributes a lot to the economy. It happened before and it will happen again. And not only in terms of providing high-tech IT, but also in the fact that these countries come with high-quality IT with a willingness to work and a high work ethic. Waves of immigration are known in all countries as those that also bring with them demand for all branches of the economy.
This great wave of immigration is already clear and understandable to everyone, except for the real numbers, which are much higher than what is published in the Israeli press. Because the press publishes the numbers of the new immigrants, but the economic reporters (and the government too) do not take into account several other types of new Jewish immigrants who arrive here. No one is counting the jump in the numbers of “returning residents” – these are Russians and Ukrainians with Israeli citizenship, who over the years went down and returned to their countries of origin and are now returning to Israel again, en masse. They are not new immigrants but returning Israelis. Even more dramatic numbers are the Jews who come from Russia and Ukraine and are here on a tourist basis, until the Israeli authorities, who are acting slowly, issue them the new immigrant certificate.
And now for the numbers:
In the first half of 2022, 35 thousand immigrants immigrated, more than twice the annual rate in normal years before the corona virus. 20 thousand came from Russia, 12 thousand from Ukraine, one thousand from Belarus. But as I mentioned this is only part of the story. Estimates speak of another 25,000 Israelis who are returning residents. But the really big number comes from the fact that there are another 45,000 in Israel from Russia and Ukraine in tourist status (for a period of six months), most of whom are waiting here to receive new immigrant status and have decided not to stay in Russia/Ukraine even though they have not yet received the long-awaited certificate. It is about 105 thousand who are already here (where do they live? We thought there was a housing shortage?).
Even if we assume that everyone who wanted to come has already arrived in Israel and the rate of immigration in the second half of 2022 will return to the “norm”, this is a huge number of about 120 thousand immigrants and returning Israelis who arrived and will still arrive here as a result of the war.
Dr. Adam Reuter – Chairman of Hysonim Finance, Chairman of Hedgewiz, author of the book “Israel Story of Success”