Israel’s economy struggles under the weight of Gaza war

Mass protests against Prime Minister Benjamin Netanyahu’s controversial judicial reforms had already weakened Israel’s economy before Hamas’ October 7 offensive.

However, it suffered a great blow from the biggest attack in its history and the war that followed.

Economist Jacques Bendelac warned that the country could enter a recession if the conflict continues, saying: “The Israeli economy may be robust, but it is struggling to withstand this war that has been going on for so long.”

According to official data, Israel’s GDP, which shrank by 21 percent in the fourth quarter of 2023, recovered by 14 percent in the first three months of 2024.

However, growth slowed to 0.7 percent in the second quarter.

Three major credit rating agencies downgrade Israel’s debt.

Fitch predicted in August that the Gaza war, the longest since the war that led to Israel’s founding, could extend into 2025.

“There is a risk that this could spill over to other fronts,” Fitch said.

The focus of the fighting has shifted in recent days to northern Israel, where Hamas ally Hezbollah is fighting Israeli forces on the other side of the border.

Despite Israel’s high credit ratings, senior officials harshly criticized these moves by the institutions.

Netanyahu has maintained that the economy is “stable and solid” and will recover once the war ends.

– Projects paused –

The two main drivers of Israel’s growth are technology that is relatively free of war and weapons that are a boon to war.

Bendelac, a professor emeritus at the Hebrew University of Jerusalem, said the remaining economic engines such as tourism, construction and agriculture were “dying one after another”.

Israel stopped issuing work permits to Palestinians following the October 7 attacks, leading to a detrimental labor shortage, according to Israeli labor rights organization Kav LaOved.

Before the war, an estimated 100,000 such permits increased the workforce in construction, agriculture and industry, and tens of thousands of Palestinians also worked illegally inside Israel.

Kav LaOved said that only 8,000 Palestinian workers were exempted from the entry ban to work in factories considered to meet basic needs.

In the economic hub of Tel Aviv, construction has been halted, leaving skyscrapers and transportation projects unfinished.

Tourism has also fallen since October 7 as the war drove away holidaymakers and religious pilgrims.

The Israeli Ministry of Tourism reported that the number of tourists visiting Israel between January and July fell by a quarter compared to the same period last year, reaching 500,000.

Unable to find clients, 47-year-old Hilik Wald quit his job as a freelance guide in Jerusalem, earning an average of 18,000 Israeli shekels ($4,755) a month.

He currently works part-time at a train station information desk.

The father of two had been receiving government aid to supplement his salary for about six months, but now he can no longer receive it.

“I hope the war ends soon,” Wald said.

Long war, slow recovery

According to Bendelac, Israel has grown over the past two decades “on credit consumption, and in crisis situations many families can no longer repay their loans.”

He said the combination of high costs of living and an economic slowdown would “inevitably increase poverty”.

Humanitarian organizations in Israel are reporting increased need for their services as new faces appear in food distribution queues.

In a shopping mall parking lot in the coastal city of Rishon Lezion in central Israel, an NGO called Pitchon-Lev, which means “Open Heart,” distributes free baskets of fruit, vegetables and meat twice a week.

“We’ve more than doubled our activities” since the war began, said founder Eli Cohen, noting that the organization now supports about 200,000 families nationwide.

Cohen said that for people displaced by border clashes between Israel and Lebanon-based Hezbollah, “new beneficiaries include young people, families whose husbands are reservists, former donors and anyone who has been evicted from their homes.”

Regarding recovery prospects, Bendelac said that when war ends “the economy always rebounds very strongly.”

But he added, “The longer this war goes on, the slower and harder it will be to start over.”

© 2024 AFP