Thousands of troops to leave enclave as war takes toll on economy
▶ Inflation expected to enter banking regulator ’s target range in the first quarter of this year
Israel has said it plans to withdraw five brigades from Gaza, a move that has led one US official to say the intensity of the conflict is reducing.
Israeli officials, however, have sent mixed messages on the issue, saying military operations were shifting focus and fighting would continue for months.
Rocket fire from Gaza has dropped sharply in recent weeks as fighting has raged throughout the densely populated enclave of 2.3 million people. Israeli operations, including air strikes, were reported in central Gaza yesterday.
Defence Minister Yoav Gallant suggested a decline in violence would allow some Israeli “displaced communities home, in areas within a range of four to seven kilometres north of the Gaza Strip”.
But Maj Gen Yaron Finkelman, the chief of the Israeli army’s southern command, said fighting would continue throughout the enclave “in a variety of methods, in a variety of intensities, and in varying forms”.
Israeli military spokesman Admiral Daniel Hagari said: “We are continuing the training of officers and commanders … after their experience in combat, they are returning to training and will join the army’s line of commanders when they finish.”
Soldiers cannot remain in intense combat for weeks on end, and are often moved off the front line to rest and recuperate.
In addition, the army wants some of these brigades, which were also used for military training, to pass on their combat experience to soldiers in training within Israel. A third reason for the cutback relates to Israel’s economy, which has been hit hard by the war.
The decision is also not new – Israeli media reported in early December that some of the reserve forces would be withdrawn and replaced – meaning no overall reduction in forces – after fighting in Gaza, originally focused in the north, shifted southwards.
“Some of the reservists will return to their families and work this week,” Admiral Hagari said. This will provide a boost for the economy, he added, which has shrunk by about two per cent as hundreds of thousands of reservists have been pulled from the workplace and placed into military roles.
“It will result in considerable relief for the economy, and will allow them to gain strength for operations next year, and the fighting will continue and we will need them,” he said.
The pullback of five brigades – up to 15,000 soldiers – will represent a significant reduction in the number of Israeli ground troops in Gaza.
But the Israeli army will still have elements of about five divisions in the enclave, and while the divisions vary widely in strength, they can each comprise between 10,000 and 20,000 troops.
For example, the 551st Reserve Parachute Brigade, which is soon to be withdrawn after fighting around Beit Hanoun, is one of six brigades in the 98th Infantry Division, which has a headquarters in Gaza.
For context, Israel invaded Gaza with around 20,000 troops
Israel’s economy has shrunk by about two per cent as hundreds of thousands of reservists have left the workplace
in the northern part of the strip alone, having built up a force that was, by some estimates, up to 300,000 strong after conducting emergency mobilisation in southern Israel.
The combat contingent later grew to around 40,000 – perhaps more – because military doctrine says attacking forces need at least a three-to-one numerical advantage.
Hamas and its allied militant groups have between 20,000 and 30,000 fighters, meaning the Israelis probably had many more than 40,000 in Gaza at any given time.
A US official said the decision appeared to indicate the start of a shift to lower-intensity operations in northern Gaza.
Washington has been urging Israel to reduce the intensity of its military operation, as the death toll mounts and calls for a ceasefire grow ever louder.
The Bank of Israel has cut interest rates by 0.25 basis points, marking the first reduction since April 2020, as part of efforts to stabilise the markets, support the economy and “reduce uncertainty” amid the country’s war in Gaza.
The monetary committee lowered its key rate to 4.5 per cent, from 4.75 per cent, after holding rates since July.
“The war is having significant economic consequences, both on real economic activity and on the financial markets,” the committee said.
“There is a great amount of uncertainty with regard to the expected severity and duration of the war, which is, in turn, affecting the extent of the impact on activity.”
The war in Gaza, which began on October 7 after a deadly attack by Hamas, has had dire consequences.
More than 22,100 Palestinians have been killed and over 57,000 injured in Israel’s retaliatory attacks on the Gaza Strip.
Palestine’s gross domestic product is now projected to shrink by 3.7 per cent, from a previous growth forecast of 3.2 per cent, and its economy at a “near-complete standstill”, the World Bank said last month.
Meanwhile, Israel’s economy is expected to contract by 5 per cent annually in the fourth quarter of 2023, bringing fullyear growth down to 1.5 per cent, S&P Global Ratings said in November.
Growth this year is projected at 0.5 per cent, it said.
The Bank of Israel’s Research Department estimates that GDP will expand by 2 per cent each year in 2023 and 2024, and by 5 per cent in 2025. The revised forecast was built under the assumption that the war’s direct impact on the economy reached its peak in the fourth quarter of 2023, and that the conflict will continue with declining intensity until the end of this year.
“In view of the war, the forecast features an especially high level of uncertainty, including with regard to decisions that the government will need to make regarding how the budget will deal with the defence and civilian needs arising from the war,” the committee said.
The bank’s research department expects the government’s budget deficit, estimated at 4 per cent of GDP in 2023, to reach 5.7 per cent of GDP in 2024, and 3.8 per cent of GDP in 2025.
The debt-to-GDP ratio is expected to be about 66 per cent at the end of 2024 and at the end of 2025, before declining in the following years towards a ratio of about 63 per cent in 2030.
Meanwhile, the pace of inflation in Israel continues to decline, with the consumer price index falling by 0.3 per cent in November.
Inflation in the past 12 months moderated but remained above the upper bound of the target range, at 3.3 per cent, the regulator said.
Expectations from various sources are that inflation will enter the target range in the first quarter of the year, the committee said.
Annual inflation in 2024 is expected to be 2.4 per cent before falling to 2 per cent in 2025.
However, there are still a number of risks of a potential acceleration in inflation, such as the effects of the war and its progress on economic activity, a depreciation of the shekel, as well as fiscal behaviour, the central bank said. While the shekel has weakened against most of the world’s major currencies since the start of the war, it strengthened by 2.7 per cent against the US dollar and by 1.7 per cent against the euro since the previous interest rate decision.
“The interest rate path will be determined in accordance with the continued convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy,” the committee said.
The monetary committee lowered its key rate to 4.5 per cent, from 4.75 per cent, after holding rates since July last year