Israel’s economy battered and bruised by 11 months of war

After 11 months of war, Israel is facing its biggest economic challenge in years. Data shows that Israel’s economy is experiencing the sharpest slowdown among the wealthiest countries of the Organisation for Economic Cooperation and Development (OECD).

Its GDP contracted by 4.1% in the weeks after the October 7 Hamas-led attacks. And the downturn continued into 2024, falling by an additional 1.1% and 1.4% in the first two quarters.

This situation will not have been helped by a nationwide strike on September 1 that, albeit very briefly, brought the country’s economy to a standstill amid widespread public anger at the government’s handling of the war.

Israel’s economic challenges, of course, pale in comparison to the complete destruction of the economy in Gaza. But the prolonged war is still hurting Israeli finances, business investments and consumer confidence.

Israel’s economy was growing fast before the start of the war, thanks largely to its technology sector. The country’s annual GDP per capita rose by 6.8% in 2021 and 4.8% in 2022, much more than in most Western countries.

But things have since changed dramatically. In its July 2024 forecast, the Bank of Israel revised its growth predictions to 1.5% for 2024, down from the 2.8% it had predicted earlier in the year.

With the fighting in Gaza showing no sign of letting up, and the conflict with Hezbollah on the Lebanese border intensifying, the Bank of Israel has estimated that the war’s cost will reach US$67 billion by 2025. Even with a $14.5 billion military aid package from the US, Israel’s finances may not be enough to cover these expenses.

This means that Israel will face tough choices about how to allocate its resources. It might, for instance, need to cut