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Israel’s economy has been shaken to its core by the protracted Gaza conflict, now approaching its first anniversary. The financial repercussions are evident across the country, with poverty levels rising not just in war-affected zones but also in areas far removed from the direct confrontations with Hamas.
Israel’s economy had been weakened by months of mass protests over Prime Minister Benjamin Netanyahu’s divisive judicial reforms even before the Hamas attack on October 7. The economic disruption caused by the civil unrest left the nation vulnerable, adding another layer of complexity to the challenges that followed the assault.
But the full-scale impact of Israel’s most devastating attack in history, followed by an ongoing war, has crippled its economy. What was once a fragile situation has now escalated into a severe economic crisis, as the cost of war compounds the financial strain from prior civil unrest.
“The Israeli economy may be solid, but it is struggling to withstand this war that has lasted too long,” said economist Jacques Bendelac, who warned of possible recession should fighting persist.
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Israel’s GDP, which shrank by 21 percent in the fourth quarter of 2023, rebounded by 14 percent during the opening months of 2024, according to official statistics. Though the economy shows signs of recovery, it remains far from pre-crisis levels.
But the recovery quickly lost steam, with growth dipping to a sluggish 0.7 percent in the second quarter of 2024, highlighting a more tepid economic performance following the initial bounce-back.
Israel’s creditworthiness took a hit as the three primary ratings agencies downgraded its debt, citing concerns over the nation’s deteriorating economic conditions and the impact of prolonged unrest.
Fitch predicted in August that the Gaza war — already the longest since the war that led to Israel’s creation — could stretch into 2025.
“There are risks of it broadening to other fronts,” Fitch said.
The focus of the war has in recent days shifted to northern Israel, with Hamas ally Hezbollah battling Israeli forces across the border.
Even though Israel’s credit ratings remain robust, high-ranking officials have lambasted the agencies for their downgrades, insisting that the moves were overly pessimistic and could hinder the nation’s financial outlook.
Insisting that the economy is “stable and solid,” Prime Minister Netanyahu has voiced optimism, stating that economic conditions will improve significantly after the war is over.
