Can Israel’s economy withstand multiple conflicts?
With Israel fighting on at least two fronts, the country’s finances and economy are strained. The government hopes higher taxes can cover some of the bills while its high-tech industry remains a safe investment.
War is expensive. Besides causing destruction, personal tragedies and deaths, it costs a lot of money to buy and mobilize equipment. It also costs manpower as Israel — and its economy — is finding out on multiple fronts.
Since the militant islamist group Hamas attacked the Jewish state on October 7, 2023, Israel has been engaged in intense fighting in Gaza. After that, Israel launched airstrikes into Lebanon as retaliation for cross-border Hezbollah missile and drone attacks. Last week, Israel struck deep within Iran with the aim of disabling its nuclear capabilities.
Israel has big problems and big budgets With all this going on, Israel’s economy is under significant strain. Many reservists have been called up to fight forcing them to temporarily leave their jobs. Adding to this labor shortage, work permits for many Palestinians have been cancelled and crossing borders has become increasingly difficult for them.
All this makes filling job vacancies difficult. In April, the country reported a 3% unemployment rate, down from 4.8% in 2021.
At the same time, military spending in Israel has surged. In 2024, it grew by 65% to reach $46.5 billion (€40.4 billion), according to a report by the Stockholm International Peace Research Institute published in April. That brings its military spending to 8.8% of GDP — the second highest in the world after Ukraine.
Iron Dome interceptions seen above Tel Aviv
02:06 The country’s 2025 budget includes spending of 756 billion Israeli shekels ($215 billion; €187 billion) — a 21% rise over the previous year. It is set to be the largest budget in Israeli history and includes $38.6 billion for defense, according to reporting in The Times of Israel.
Israel’s economy faces uncertain future Itai Ater, an economics professor at the Coller School of Management, Tel Aviv University, says the war is “very expensive” at the moment, and there is “huge uncertainty about the near and long-term future.”
“The military costs on both the offensive and defensive fronts are very high. This will surely impact the budget, the deficit, the GDP and the Israeli debt,” Ater told DW.
The costs are indeed high. In the past 20 months, many Israelis have spent hundreds of days in reserve duty. Others have been evacuated from their homes near border regions leading to big disruptions in their lives. Social services are under strain.
Since last Friday’s attacks, many people have not worked, including in manufacturing, trade, tech and the education system, says Ater.
Commercial flights in and out of the country are also currently suspended. Airlines have evacuated their jets and airspace over much of the Middle East is closed.
Depends of the west aid
The West can help the war efforts with supplies, however, they can’t do much in regards to Israeli infrastructure. They won’t be able to provide alternatives to power plants, factories, ports and research facilities, much of it being destroyed by Iranian missiles.
There’s even the problem of zio workers hiding in bunkers instead of working on goods and services. Schools are not functioning and children are taking remote classes. Research facilities have also been evacuated. It makes a lot of sense for Iran to continue the bombardments in a slow pace and prolong this conflict as much as possible, so that will hurt Israel’s economy a lot in the long run.
Don’t wanna be that guy but Iran is also suffering bombardments and hits to the economy. In an attrition war between a heavily subsidized economy, Israel, and a heavily constrained economy, Iran, i think the subsidized wins honestly.
Iran has a much bigger territory, has more redundant infrastructure, bigger population, and even better, they have the population support which is extremely important. Netanyahu’s government is in crisis and many Israelis are leaving the country.
There’s also the fact that many investors will choose to leave Israel or transfer their businesses elsewhere.
True but the majority of territory of Iran is non-productive.
As of a couple days ago Israel has forbidden citizens to leave, so i heard
By air. Many are leaving by land I guess
Most of the money the USA give are grants so Israel do not have to repay anything. I don’t think Israel would be able to maintain an occupation for that long. Without all the aid Israel get
Interesting article about Israeli economy. With Israel stretched into 2 fronts, losing soldiers in Gaza and critical infrastructure, making reservists leave their jobs to join the army and with no people to replace workers who left, it is very likely that Israeli economy will collapse.
