Senior Israeli economists warn ongoing Gaza War threatens long-term stability of country's economy

Read this article in:

Economists in Israel warn that the nation's ongoing protracted war against the Iranian-backed terrorist organization Hamas in Gaza threatens the Israeli economy’s long-term viability. While the State of Israel has fought wars to defend itself since the nation was established in 1948, the robust Israeli economy has typically recovered quickly.

However, Karnit Flug, the former Israel Central Bank head, warned that the ongoing conflict in Gaza in Israel's south, as well as the conflict with Iranian-led Hezbollah forces in Lebanon on the northern border, threaten to undermine the Israeli economy.

“The economy right now is under huge uncertainty, and it’s related to the security situation – how long the war will go on, what the intensity will be and the question of whether there will be further escalation,” Flug stated.

“The public will have a hard time accepting it if the government does not show that the severity of the situation forces them to give up some of the things that are dear to them,” he warned.

Recent data from the Israeli Central Bureau of Statistics (CBS) indicate that the Israeli economy is currently experiencing a slowdown in its Gross Domestic Product (GDP), with per capita GDP contracting by 0.4% due to population growth outpacing economic growth.

Ronen Menachem, chief markets economist at the Israeli Bank Mizrahi-Tefahot, believes the Israeli economy has already suffered significantly due to the ongoing war.

“Gross domestic product per capita shrank both compared to the previous quarter and compared to the corresponding quarter last year, a figure that clearly indicates the significant damage that the ongoing war is causing to the economy,” Menachem assessed.

Last month, CofaceBDI, an Israeli information company, predicted that the ongoing war could force around 60,000 Israeli businesses to close in 2024, with small businesses being particularly at risk.

Tourism in Israel has suffered significantly since the Hamas terror attack on Oct. 7, 2023.

Israeli tour guide Daniel Jacob expressed concerns shared by many fellow Israelis.

“The hardest thing is that we don’t know when the war will end,” Jacob said.

Jacob served as a reserve soldier for six months. Upon returning to civilian life, he was forced to shut down his tourism business, which he had dedicated two decades to building. The current government aid covers only half of his prewar income, making the situation unsustainable.

“We need to finish the war before this year’s end. If it’s another half a year, I don’t know how long we’re going to make it,” he stressed, noting that his family is currently living off their savings.

Israeli economist Yacov Sheinin believes the total cost of the war could potentially reach $120 billion, or approximately 20% of Israel’s total annual GDP.

In early June, current Bank of Israel Governor Amir Yaron warned that the cost of the Gaza War could reach $67 billion during the period from 2023 to 2025. This estimate includes both military and civilian expenses.

He urged the government to adjust the budget for growing long-term security expenses.

“The government needs to make sure that it makes the right balances and budget adjustments in light of growing permanent security expenses,” Yaron assessed.