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The long-term effect of war on the Israeli economy could be profound


Natale Labia writes on the economy and finance. Partner and chief economist of a global investment firm, he writes in his personal capacity. MBA from Università Bocconi. Supports Juventus.

Since the barbaric Hamas attack on 7th October, the shutdowns that have hammered the $520-billion economy are even more extreme than the Covid lockdowns. 

What are the economic consequences of the Israel-Hamas war? The collective punishment meted out by Israel on millions of civilians in Gaza, most of whom are women and children, is beyond description. 

More than 11,000 people have already been killed, tens of thousands have been injured and more than 1 million have been displaced. 

More than half a million people in northern Gaza face near-certain death as drinkable water and food supplies run perilously low. 

However, perhaps less recognised is the economic act of self-harm being committed by Israel.

Read more in Daily Maverick: Brutal assault on Gaza has profound implications for how the world views Israel

The economic juxtaposition between the Gaza Strip and Israel is among the most extreme in the world. As shown by economic historian Adam Tooze, Gaza has been systematically “de-developed” by Israel. 

Blockaded by Israel since 2007, the Gaza economy has not grown since the 1990s. Even before the land invasion, poverty rates in Gaza were over 50%, with unemployment between 40% and 50%. 

By extreme contrast, Israel has been something of an economic miracle since the Second Intifada of the 2000s. With economic growth averaging 3.1% over the last 20 years, the country has run consistent budget surpluses and now boasts a GDP per capita higher than both Germany and the UK. It has built up a foreign exchange reserve war chest of more than $200-billion. 

Under Prime Minister Benjamin Netanyahu, Israel became a neoliberal poster child and a haven for foreign direct investment into its booming technology sector. Tel Aviv and Haifa became hubs for cutting-edge start-ups, often with close links to the Israeli military-industrial complex. 

Netanyahu has often boasted that his popularity comes from being trusted on security and the economy. Since the barbaric Hamas attack on 7th October, the shutdowns that have hammered the $520-billion economy are even more extreme than the Covid lockdowns. 

The military call-ups – over 360,000 reservists, over 10% of the workforce – and partial economic freeze have triggered a sudden drop in activity and upended everything from banking to agriculture

The government has responded with a vast Covid-style business bailout package costing the equivalent of $2.5-billion a month, according to Mizrahi-Tefahot, a major Israeli bank. 

However, critics say it does not go nearly far enough. 

The Israeli central bank has warned that the impact will worsen the longer the conflict lasts. The most alarmist forecasts on Wall Street, from JPMorgan, suggest that the Israeli economy might shrink this quarter by 11% on an annualised basis.

In an open letter, 300 leading figures, including Prof Jacob Frenkel, former governor of the Bank of Israel, government adviser Prof Leo Leiderman of Tel Aviv University, and 2021 Nobel Prize winner in Economics Joshua Angrist of the Massachusetts Institute of Technology, have warned Netanyahu: “You do not understand the magnitude of the economic crisis that Israel’s economy is facing. Continuation of the current conduct in Gaza harms Israel’s economy, undermines citizens’ trust in the public system, and undermines the State of Israel’s ability to recover from the situation it finds itself in.” 

But the real damage being done to the Israeli economy is hard to quantify at this early stage. As international sentiment on the war turns against Israel, reputationally it will be difficult to retain that pre-war lustre. 

Early indicators are bleak.

With more than 20% of their employees called up to the military, more than 500 technology companies surveyed by Bloomberg said they have had investments cancelled in the last month. 

In an open letter, Dr Tomer Simon, chief scientist of Microsoft Israel, has warned that the current suffering of civilians in Gaza “will cause multinational companies to freeze or reduce their investments after the conflict, and even to close their R&D activities [in Israel]”. 

“Such actions will weaken our global position and undermine our internal stability even more.”

While it is hard to know with clarity what exactly is happening with Israel’s grinding land offensive into Gaza, early indications are that it will take a long, long time. 

Hamas has spent years preparing the urban sprawl for exactly this. As seen in Ukraine, a quagmire of months if not years of unrelenting guerilla warfare looms ahead. Following that, while Netanyahu has suggested Israel will continue to occupy the strip, it is still impossible to know precisely what is Israel’s endgame for Gaza.

While with vast foreign exchange reserves Israel can easily cover the costs of this onslaught, the long-term effects on the Israeli economy could be profound. 

Ironically, Hamas has achieved exactly what all such terrorists aim for: trap your adversary into damaging itself more acutely than you could ever have done. Provoked into reacting exactly as Hamas had hoped, the biggest loser in this historic conflagration will be Israel. DM


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  • Kenneth FAKUDE says:

    I couldnt agree with you more Hamas maybe wiped out but they have horribly won as sad as it is for the innocent Israel and Palestine civillians they have with one single blow exposed Israel and the west for the animals they are, brought the Arab league together, exposed the forgotten statelessness of the Palestinians made Iran a better evil, the west can support Israel as much as they want but they are going down to a very isolated black hole and they have exposed the UN security council as a toothless organisation which can be vetoed by superpowers its high time there is an african/asian and middle east security council with an army to protect civillians

  • Rael Chai says:

    “However, perhaps less recognised is the economic act of self-harm being committed by Israel.”???? Self Harm? Did Israel invade themselves? What a load of claptrap. On this rationale Ukraine should have just laid down their arms and let Russia take over the country – Ukraine’s economy has also suffered significantly since the Russian invasion. The damage to Israel’s economy does not come from their invasion of Gaza but rather from having to shelter from Hamas rockets which bombard the country constantly; having to evacuate 250 000 civilians from Gaza border communities; having to rebuild infrastructure that was burnt to the ground by Hamas terrorists; having to cancel mass gatherings to avoid possible mass casualty events from Hamas rockets and other terror attacks; and only finally having to take working age men out of work to find and destroy the Hamas terror organisation which started this war and poses an existential threat to the State of Israel. Israel will rebuild as they have time and time again and the economy will continue to grow through their innovation and start up nation. As opposed to SA which will continue to stand on the edge of a debt spiral despite not being involved in any wars.

  • Sydney Kaye says:

    “The Gaza economy has not grown since 2007”. Do you think that has anything to do with the so called government diverting all resources and aid into tunnels and tickets instead of development.

  • Sydney Kaye says:


  • Johann Olivier says:

    A pox on both fascist Bibi & his government as well as the scum called Hamas. The former created & encouraged an environment where the latter thrived. NOTHING that is happening now is going to change that paradigm.

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