The rising cost of bombing in Lebanon — and the rising cost of living in London

A poster on the District Line at Earls Court inviting me to holiday in ‘the 24-hour Mediterranean city, Tel Aviv’ made me want to know more about the local economic impact of the war between Israel and Hezbollah. The rather severe-looking bikini-clad model in the poster is probably in uniform by now, and if Hezbollah’s rockets have reached her home city by the time you read this, the ferocity of Israel’s response will be terrible to contemplate. Israel’s economy had been expected to grow this year at more than 5 per cent, but pundits have slashed their forecasts, and international investors who had bought into Israel’s high-tech and pharmaceutical industries have been running for cover. The northern city of Haifa, which has been hit by rockets, is home to research and development facilities for the likes of Microsoft and Intel, but few factories in the region are able to operate normally. Analysts say the call-up of reservists is also likely to be a major disruption to business.

But all that is, of course, as nothing compared with the damage to the much smaller and more fragile Lebanese economy. Having begun to recover from a downturn after the assassination of prime minister Rafik Hariri in February last year, Beirut had been enjoying a property boom and was looking forward to its best-ever year for tourism, with some 1.6 million visitors expected to spend $2.5 billion. Those who had recently arrived have now fled, and the bombing of the airport has put paid to any short-term hopes of revival. The Lebanese are famously resilient merchants and financiers, and Beirut’s minimally regulated banking sector will no doubt continue to function as an important channel and repository for all kinds of Arab money. But the Lebanese government was already swamped by external debt, and only a massive international aid programme — with Saudi Arabis so far the biggest donor — can pay for reconstruction of the infrastructure that has been destroyed.