Nearly a year of war in Gaza has taken a toll on Israel’s economy, with poverty now becoming a threat in communities far from the conflict with Hamas.
Prior to the Hamas attack on October 7, Israel’s economy was already struggling due to mass protests against Prime Minister Benjamin Netanyahu’s controversial judicial reforms.
The impact of the worst attack in Israel’s history and the subsequent war have dealt a major blow to the economy.
“The Israeli economy, though solid, is finding it difficult to cope with this prolonged war,” said economist Jacques Bendelac, warning of a possible recession if the fighting continues.
Official data shows that Israeli GDP shrunk by 21 percent in the fourth quarter of 2023 but rebounded by 14 percent in the first three months of 2024. However, growth slowed to 0.7 percent in the second quarter.
Israel’s debt has been downgraded by the three main ratings agencies, with Fitch predicting that the Gaza war, the longest since Israel’s creation, could extend into 2025.
“There are risks of it spreading to other fronts,” Fitch said.
The focus of the recent war has shifted to northern Israel, where Hamas ally Hezbollah is engaging in battles with Israeli forces across the border.
While Israel’s credit ratings remain high, top officials have criticized the agencies’ downgrades.
Prime Minister Netanyahu maintains that the economy is “stable and solid” and anticipates improvement once the war ends.
– Projects on Pause –
Israel’s tech sector, which is relatively insulated from the war, and the weapons industry, which benefits from the conflict, are the main drivers of growth. However, tourism, construction, and agriculture are struggling, according to Bendelac.
Since the October 7 attack, Israel has stopped issuing work permits for Palestinians, leading to labor shortages in key sectors like construction and agriculture, where tens of thousands of Palestinians previously worked either legally or illegally in Israel.
Construction projects in Tel Aviv are halted, and tourism has significantly declined, with only 500,000 tourists visiting Israel from January to July, a quarter of the previous year’s number for the same period.
Hilik Wald, a former freelance guide in Jerusalem, had to switch to a part-time job at a train station after giving up his guiding job due to lack of clients caused by the war.
While the economy typically restarts strongly after the end of a war, the prolonged conflict is expected to make the recovery slower and more challenging, according to Bendelac.
We-myl/mj/rcb/jd/srm/ser