Before the war broke out following an unprecedented attack by Hamas on southern Israel on October 7, Israel’s economy was already suffering as a result of months of mass protests against judicial reforms proposed by Benjamin Netanyahu’s government.
But the economy has been dealt a severe blow by the attack and the war that followed, which continues with no end in sight, according to a report by Agence France-Presse.
“The Israeli economy is solid, but it is struggling to bear the burden of this long-lasting war,” says economist Jack Bendelak, warning that the economy could enter a recession if the fighting continues for a longer period of time.
After GDP contracted by 21 percent in the last quarter of 2023, when the war broke out, the economy regained some of its strength early this year. GDP increased by 14 percent in the first three months of 2024, according to official data.
However, growth faltered in the second quarter, falling to 0.7 percent.
The three major international rating agencies have lowered their ratings on the country’s debt. Israel.
Fitch Ratings predicted in August that the war in Gaza, Israel’s longest since its establishment in 1948, could extend into 2025.
The agency warned of “the dangers of this war expanding to other fronts.”
The war in Gaza over the past months has raised fears that it could spread to other fronts. In recent days, Israel has significantly escalated its air strikes in Lebanon, announcing that it has struck Hezbollah targets, after more than 11 months of almost daily cross-border shelling. Hezbollah has responded by striking targets deep inside Israel.
Although Israel’s debt rating remains high, Israeli officials have criticized the rating agencies. Netanyahu has stressed that the economy is “stable and solid” and will improve once the war is over.
Suspended projects
The Israeli economy relies on two main drivers of growth: technology, which remains relatively immune to the effects of war, and weapons, the production of which flourishes during every war.
But other economic engines such as tourism, agriculture and construction are “withering away one by one,” said Bendelak, a professor emeritus at the Hebrew University of Jerusalem.
Israel stopped issuing work permits to Palestinians after the October 2023 attack, leading to a labor shortage within the country, according to the Israeli workers’ rights group Kav LaOved.
Before the war, the Israeli authorities issued about 100,000 of these permits, which contributed to the global strength of the construction, agriculture and industry sectors. In addition to these, there were tens of thousands of Palestinians who worked illegally in Israel.
The Workers’ Rights Association said that only eight thousand Palestinian workers were exempted from the suspension of issuing licenses, to work in factories considered vital.
In Tel Aviv, construction work has been put on hold as skyscrapers and transportation projects are halted.
Tourism has also declined since the war broke out, with fewer visitors coming for vacation or religious tourism.
Some 500,000 tourists visited Israel between January and July, a quarter of the number of tourists in the same period the previous year, according to Tourism Ministry figures.
Hilik Wald, a 47-year-old freelance tour guide, said he quit his job, which brought him an average monthly income of 18,000 shekels ($4,755). He now works part-time at the information desk at a train station. For about six months, the father of two received government aid, but he is no longer eligible for it.
“I hope the war will end soon,” he said.
