By Steven Scheer

JERUSALEM Five weeks into Israel's war with Palestinian militant group Hamas, Israelis are spending less but a recovery may have begun after a steep drop at the start of the conflict, the Bank of Israel said on Tuesday.

The central bank said that since the war's outbreak, credit card spending - a key indicator of consumer expenditures that is more than half of economic output - is down 9% from its forecast level, but off a low of 20% after the first three weeks.

It said spending, based on daily data received from Israel's credit card processing firm, has slid on education, flights, hotels, car rentals, fuel, transport and restaurants, but risen in supermarkets due to what it called "the public's initial concerns of a shortage of products" and calls by authorities to stockpile food for 72 hours.

The Bank of Israel said that credit card data are crucial for monetary policy since much of the data necessary for making economic policy decisions do not exist in real time, and sometimes the lag is several weeks to a few months.

"Credit card expenditures are a real-time indicator of the level of business and consumer activity," it said. "These data make it possible to lower the extent of uncertainty with which economic policy decisions are made, and their use is very important during a crisis when there is increased uncertainty."

The use of credit card spending data, the central bank said, also made it possible to assess the level of activity during the war compared with the past. Current data show spending similar to the second COVID lockdown in September 2020 but higher than the first lockdown at the start of the pandemic in March 2020.

Assuming the Gaza war remains concentrated along Israel's southern border with the enclave and lasts until the end of the year, the central bank projects GDP growth to fall by about 1% in 2023 and 2024 - translating to growth of 2.3% this year and 2.8% next.

Its projections are more optimistic than those of S&P Global Ratings, which on Monday estimated growth for Israel of 1.5% in 2023 and 0.5% in 2024, with a contraction of 5% in the current quarter. The bank said any drawing of other regional players into the war would "have more significant repercussions for Israel's economy".

According to the Economy Ministry, 19% of Israel's active labour force are not working due to the war, as many of them have been called up for military reserve duty.

(Reporting by Steven Scheer; editing by Mark Heinrich)