JERUSALEM — As Israel’s conflict with Hamas drags into its 11th month, the nation’s economy is facing severe strain, with widespread business closures, disrupted tourism, and diminishing international confidence. Despite Prime Minister Benjamin Netanyahu’s assurances that the economic setbacks are temporary, economists argue that a cease-fire is crucial for stabilizing the situation.
In Jerusalem’s Old City, nearly all souvenir shops are shuttered. Haifa’s flea market, once bustling, now sees few visitors. The impact is widespread: airlines are canceling flights, businesses are failing, and luxury hotels remain half-empty.
Karnit Flug, former central bank chief and current vice president of research at the Israel Democracy Institute, highlights the economic uncertainty tied to the ongoing conflict. “The economy is under immense strain due to the security situation,” Flug noted. She emphasized that the prolonged nature of the conflict and potential for escalation are significantly affecting economic stability.
The war has severely impacted Gaza, displacing 90% of its population and leaving most of the workforce unemployed. The conflict has claimed over 40,000 lives, according to Palestinian health officials, and caused extensive damage, both in Gaza and along Israel’s borders.
The Israeli economy has historically rebounded from shorter conflicts, but the current prolonged war is creating unprecedented challenges. The costs associated with rebuilding, compensating victims, and sustaining military operations are immense.
Tourism, while not a primary economic driver, has been hit hard. Tour guide Daniel Jacob, who had to close his business after returning from reserve duty, reflects the broader struggle: “We need to end the war before this year’s end. If it continues for another six months, I don’t know how long we can hold out.”
The port of Haifa, a key hub for import-export activities, has seen a 16% drop in shipping volume due to disruptions in global trade routes and regional threats. This decline is exacerbated by major airlines suspending flights to and from Israel, further straining the tourism sector.
Economists estimate the total cost of the war could reach $120 billion, roughly 20% of Israel’s GDP. The Organization for Economic Cooperation and Development (OECD) reported that Israel’s economy experienced the steepest slowdown among its member countries in the first half of the year. GDP growth forecasts have been revised downward from 3% to 1.5% for 2024, contingent on the war’s resolution.
The economic downturn has prompted credit rating agencies Fitch, S&P, and Moody’s to downgrade Israel’s credit rating, increasing borrowing costs. The Finance Ministry reported a deficit exceeding 8% of GDP, up from the projected 6.6% for 2024, putting additional pressure on the government.
To address the economic challenges, Finance Minister Bezalel Smotrich plans to balance war needs with fiscal responsibility. However, he faces political hurdles within the coalition, particularly from factions prioritizing the continuation of the conflict.
The unemployment rate has fallen slightly to 3.4%, but this figure excludes those pushed out of the labor market by the war. Approximately 46,000 businesses have closed since the conflict began, with 75% being small enterprises.
Even the historic American Colony hotel in Jerusalem is feeling the strain, contemplating pay cuts and potential temporary closure.
Economic experts, including Jacob Sheinin, advocate for ending the war as the most effective strategy for economic recovery. “If we continue this war, recovery will remain elusive,” Sheinin warned.
As the situation remains uncertain, the call for a cease-fire grows louder, with many believing it is essential for Israel’s economic stabilization and future prosperity.
