Israeli Economy Predicted to Contract by 5% Due to Ongoing Wars
As Israel grapples with its third major conflict in just two years, recent analysis reveals the nation's economy is expected to shrink by 5% owing to the wars in Gaza and against Iran.
Warfare Impacting Economic Stability
Since the Hamas attack on October 7, 2023, Israel has been engaged in continuous military operations. The mobilization of hundreds of thousands of reservists disrupted daily economic activities, pulling large portions of the workforce into military service and stalling business operations.
The military campaign, initially concentrated in Gaza against Hamas, expanded to confront Hezbollah in Lebanon and carried out a bombing offensive targeting Iran's nuclear and ballistic missile programs. While these actions have achieved strategic objectives, they have come at a steep economic price.
Economic Consequences Run Deep
Missile attacks and rocket fire have damaged infrastructure across Israel, prompting extended closures of several establishments due to security concerns. This has contributed to a notable downturn in economic growth, with forecasts suggesting the fallout will persist over the coming years.
Key Economic Indicators Reveal Strain
- Economic growth dropped sharply, from 6.5% in 2022 to merely 2% in 2023, with projections as low as 0.7% for 2024.
- Business investment suffered a dramatic decline, plunging by nearly 68%.
- Defence spending surged by over 60%, driving the fiscal deficit above 6%—a stark contrast to the pre-war surplus of 0.6%.
Senior economists attribute much of this economic contraction to the massive withdrawal of labor as reservists were called to duty, combined with the disruption of the workforce in Gaza following the attacks.
The Road Ahead
While resilience has been demonstrated in various sectors, the supply-side disruptions continue to weigh heavily on Israel's economy. Recovery is expected to be gradual, with the war's economic toll echoing for years to come.
