More than a year into the most expensive war in Israel’s history, Its leaders are eyeing the economic toll while cautiously finding some good news.
The war disrupted everything from agriculture to tourism to foreign investment to the nation’s vaunted high-tech sector.
With Israel emerging from a seven-front war as the Middle East’s dominant force, its economy, too, shows resilience.
According to the Bank of Israel, the Israeli economy expanded at a healthy annual rate of 3.8 percent during the third quarter, far stronger than the anemic 0.3 percent of the previous quarter.
A key index on the Tel Aviv Stock Exchange, the TA-125, on Dec. 30 showed the Israeli stock market up more than 28 percent for the year and at an all-time high.
Home buying, which signals economic recovery, is up.
An Exodus of Professionals?
High tech accounts for 16 percent of Israel’s employment, 20 percent of its economic output, more than half of its exports, and a third of its income taxes.Investment in the high-tech sector dropped 30 percent in the first year of the war, according to a report released by the Israel Advanced Technology Industries and the RISE Israel Research and Policy Institute.
Some tech professionals, like other Israelis with foreign options, fled the country after Hamas’s devastating attack on Oct. 7, 2023. Foreign companies reportedly hesitated to invest there, preferring to house critical operations abroad—where airports and offices weren’t under rocket attack.
But end-of-year financial reports showed a rebound. Foreign investment in Israel in the first half of 2024, $11.8 billion, proved significantly stronger than that in the first half of 2023, which was $7.3 billion, not including a one-time $15 billion investment by Intel in a new microchip plant.
An early exodus of professionals eased a month after Oct. 7, 2023. There were indications it had begun even before the attack, driven by the preceding year of paralyzing protests over Prime Minister Benjamin Netanyahu’s plans to reform the Supreme Court by removing its ability to declare decisions made in the Israeli Knesset, or parliament, as unreasonable.
Left-leaning Israelis who look to the court as a check on the nation’s conservatives took social unrest to an unprecedented level. Reservists, including generals, were threatening not to appear for military reserve duty. The sentiments were strongest in secular, westward-looking Tel Aviv—also the heart of Israel’s tech economy.
Leon Hadar, a fellow of the Philadelphia-based think tank Foreign Policy Research Institute, said he thinks dire reports of an exodus were overblown.
“When the economy is down, there’s always a lot of emigration,” Hadar, who also writes for the Israeli newspaper Ha'aretz, the Business Times of Singapore, National Interest, and other publications, told The Epoch Times. Even among the Jews who emigrated early in the 20th century to Palestine, before there was a Jewish state, a majority returned home.
Some of the outflow was wealthy people who also owned a home abroad, effectively commuted between it and Israel, and opted to live in it during the war, he said.
“Leaving is not easy for the middle class: to move a family, to leave your country,” he said. He acknowledged, though, that young, single people—which describes a lot of techies—were more mobile.
Emigration showed a 285 percent increase in the month following the October 2023 attack, compared with the same period in 2022, according to Israel’s Central Bureau of Statistics. Showing the effect of the protests, 51 percent more left from June through September 2023 than in the same period the previous year.
Enough people left to affect housing markets in nearby Cyprus, a popular destination. The arriving Israelis, and Russians similarly fleeing war, drove up housing prices in cities like Limassol, a popular destination for Israelis, pricing some Cypriots out of the market.
The trend eased quickly, though. Thirty thousand Israelis left the country permanently between November 2023 and March 2024, 14 percent fewer than the same period the previous year.
But emigration had increased, without question. Israel’s demographers don’t mark departures as permanent until the emigrants have been gone nearly a year. From 2021 through 2023, the number leaving permanently pulled steadily ahead of those leaving and returning. Statistics showed that more of those were married and educated.
“Israel has to make sure the young, educated elites remain in Israel,” Hadar said. “They are providing Israel with added value.”
Some of the gap, though, was filled by immigration, which continued, despite the war, to a nation historically built on it.
Challenges for the Economy
“The economic hits have been very significant,” Eli Sperling, a teaching fellow at the University of Georgia’s Israel Institute, told The Epoch Times.He said a big one is the mobilization of more than 350,000 reservists, most still in uniform, which removed them from jobs and businesses. An estimated 60,000 Israeli businesses closed in 2024, about 50 percent more than usual.
“So many people couldn’t work the last year and a half,” Sperling said. “It’s had a significant effect on the economy.”
Tens of thousands of foreign agricultural workers left the country. Crops rotted in the fields. Thousands more Palestinians, who had commuted to jobs in Israel from Gaza or the West Bank, were barred.
Foreign investors became wary, as Hamas’s rocket attacks jeopardized air travel to and from Israel and created hazards for employees and workplaces.
Some investors got cold feet as Israel’s invasion of Gaza in pursuit of Hamas got fully underway, and as demonstrations became a daily occurrence on U.S. college campuses and in European cities.
Tourism dropped, costing Israel about $5 billion in the first year of the war. Sperling said he could speak to that personally. Two UGA student trips to Israel he was to have accompanied were canceled. Countless other schools, churches, and synagogue groups did the same thing, he said.
Hotel occupancy fell off sharply.
Some of the tourist industry’s slack, though, was taken up by the government paying hotels to house Israelis displaced by Hamas’s attacks in the south or Hezbollah’s rocketing in the north, Sperling said.
In May 2024, Bank of Israel Governor Amir Yaron estimated that the cost of the war from 2023 to 2025 would be an estimated $67 billion.
The government still faces a formidable array of financial issues. Inflation continues, but not as badly as before. While it was 5.4 percent in January 2023, nearly a year before the war, it was down to 3.4 percent in November 2024, according to the Bank of Israel.
That was still higher than the government’s target of 1 to 3 percent and high enough to keep interest rates from being cut just yet to boost the economy.
Growth slowed after the war began, to an estimated 1.9 percent for 2024, compared with 3.4 percent the previous year.
Israel’s credit rating was downgraded twice by Moody’s Investor’s Service, the second time by two notches. That came in September 2024 after Israel escalated its war with Hezbollah. Moody’s forecast a slower recovery than after previous conflicts and “a significant escalation in geopolitical risk.”
The first downgrade, in February 2024, was the first time Israel’s rating had sunk below A1.
With the New Year, Israeli residents saw the value-added tax, one levied on all transactions, rise from 17 to 18 percent.
Intangibles may have helped the economy: the Tel Aviv Stock Exchange surged in late September 2024 after the string of stunning Israeli attacks that took out not only the heads and military leaders of the Hezbollah and Hamas terror groups but also thousands of top and middle-level Hezbollah operatives wounded or killed when their pagers or handheld radios exploded.
While these kinds of victories negatively affect public opinion in some sectors, Sperling said they “give confidence to big businesses and governments around the world that have long partnered with Israel.”
The new year also brings with it reforms the government hopes will help the economy, such as cutting bureaucratic requirements that slow imports and easing some importation monopolies that drive up costs of consumer goods.
While sustaining greater war spending, the government has other sectors of the economy crying out for support, including high-tech.
Israel dropped in its worldwide rankings in AI from 5th place in 2021 to 9th place in 2024.
Its high-tech leaders want the government to spend more on tech education to give it 23,000 qualified high school graduates and 9,000 college graduates a year by 2028, compared with 13,000 and 7,500, respectively, in 2023.
The war has been good for defense and security-related industries, Sperling said. “They get a financial boost in wartime. There’s interest from international parties and investors as a result of new technologies being showcased.”
Agriculture may start bouncing back, and if it does, food prices could come down.
Thailand in June announced that Thai workers would begin returning to Israeli farms. Almost 30,000 foreigners had worked there before the war, including 10,000 Thais, some of whom were killed or taken hostage by Hamas in its Oct. 7, 2023, attack.
Thailand said it hoped to have more than 10,000 back in Israel by the end of the year. Meanwhile, workers from Sri Lanka had begun coming to Israel to work.
If agriculture does rebound, Sperling said, it will help the economy by lessening food imports.
The government hoped the cease-fire with Hezbollah would encourage work to begin again on farms in the north. It’s too early to say, though, whether that hope will come true, Sperling said.
The jury is still out among northern residents on whether the 60-day cease-fire with Hezbollah, which ends on Jan. 27, will hold well enough to secure northern homes and businesses. Few trust the Lebanese Army and UN peacekeepers to confront Hezbollah’s continued military presence near the border, which they are supposed to prevent, he said.
It’s incumbent for the government to show economic progress, Sperling said. “High cost of living, low wages, high cost of fuel, of cars—these affect public opinion, in supporting or not supporting the government, and how voters think about their vote for the [next] election.”
