After two years of war, Israel faces economic headwinds • FRANCE 24 English

After two years of war, Israel faces economic headwinds • FRANCE 24 English

wars on multiple fronts, increasing international isolation, and yet the Israeli economy appears resilient. The investors of the world, get on board now because we’re about to take off. In the immediate wake of October 7th, Israel’s main stock index crashed by some 23%. 2 years later, it’s at a record high, up more than 200%. After an anemic 2024, the OECD is now forecasting Israeli GDP growth of 3.3% this year and 4.9% for 2026, some of the highest rates in the developed world. A ceasefire with neighboring Lebanon and the end to a relatively brief air war with Iran, a relief to investors. But those wars and the war in Gaza are expensive. As of August, the multifront conflict had cost some $89 billion. The takeover of Gaza City is estimated to potentially end up costing nearly 30 billion. To help pay for it, Israel’s VAT was raised by 1% at the start of 2025. The country’s debt level, meanwhile, has gone from 60% of GDP to 70% over the past 2 years. The calling up of hundreds of thousands of Army reserveists has not only hit productivity, but also sparked a brain drain in the critical tech sector, which accounts for 20% of GDP and 56% of exports. In the first year of the war, more than 8,000 tech workers relocated abroad. Most costly, though, may be Israel’s loss of standing on the international stage. Tens of thousands of Palestinian civilians have been slaughtered in what is increasingly recognized as an ongoing genocide in Gaza. Norway’s sovereign wealth fund, the world’s largest, has divested from a number of Israeli firms, citing ethical standards. Meanwhile, the European Union, Israel’s main trading partner, is threatening to increase tariffs on Israeli goods. We regret having to take this step. However, we believe it is both appropriate and proportionate given the ongoing humanitarian crisis in Gaza. Israel has not yet lost its most important ally and patron, the United States, which provides some $4 billion in funding per year. But even that could change. Recent polling shows a dramatic shift in US public opinion with a majority of voters now opposed to sending Israel any more military or economic aid.

Despite ongoing war and political isolation, Israel’s economy has shown surprising resilience. The TA-125 stock index has rebounded to record highs, and GDP growth is forecast to rise, though war costs have reached nearly $89 billion. A brain drain in the tech sector, rising debt, and growing international backlash — including EU trade threats and US public opinion turning against further aid — now pose serious long-term risks.
#Israel #war #economy

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