Israel notes improvement in foreign investments amid war, political instability

The Israeli economy and foreign investments have been greatly affected by two years of domestic political instability and 15 months of war with Iran's terror proxies Hamas, Hezbollah and the Houthis. However, preliminary data from the Israeli Finance Ministry indicates a recovery in foreign investments, which are vital for the Israeli tech-driven economy. 

“Current data for 2024 shows a growing trend in foreign investment transactions in Israel, and we expect the improvement in the security and political environment to support the trend in the future,” the Finance Ministry chief economist, Shmuel Abramzon, assessed. 

“The Finance Ministry continues to work even during this period to expand Israel’s trade agreements to create a supportive environment for increased investments and to enable the diversification of investment sources available for the Israeli economy,” he continued. 

The new data reveals that foreign investment transactions in Israel reached $11.8 billion during the first half of 2024. While this amount is 28% less than the same period in 2023, it is, nevertheless, 15% higher than in 2022. 

Abramzon noted that 2023 was a challenging year for the Israeli economy as foreign investments shrank due to a combination of political instability and the Hamas-led Oct. 7 attack.

However, despite the challenges, data from the Israeli Central Bureau of Statistics (CBS) revealed that foreign investments in Israel in 2023 reached $32.9 billion compared to $23.5 billion in 2022, representing a 40% increase. 

Bank of Israel Governor Amir Yaron estimated earlier this year that the Gaza War could end up costing $67 billion in military and civilian costs for the Israeli economy during the period 2023 to 2025. If materialized, it would become by far the most expensive war in the Jewish state’s modern history. 

In addition to political instability and the Gaza War, Abramzon noted that “the global trend of a slowdown in the flow of foreign investments in 2023 did not escape Israel.”

“The volume of transactions in Israel in 2023 stood out favorably against the background of Intel’s giant investment deal, while we were negatively affected mainly in the fourth quarter because of the war,” he concluded. 

The encouraging data from the Finance Ministry is not the only indication that the Israeli economy is gradually recovering despite the ongoing war. 

The Israeli economy reportedly expanded by an annualized rate of 3.8% during the third quarter between July and September, according to a preliminary report released by Israel's CBS in November. This represents a major improvement compared to a growth rate of only 0.3% during the second quarter of 2024.

The report also noted a 21.8% increase in fixed assets, which is encouraging as transactions involving residential homes usually signal economic recovery. 

Furthermore, there are also encouraging signs from the Tel Aviv Stock Exchange. Data from the Israeli stock exchange published in October revealed that the important 35 Index reportedly increased by 14% since Oct. 7, 2023.

Overall, the Israeli economy appears to have remained resilient despite many challenges and reports, including downgrades by leading global credit agencies.