Jerusalem: As Israel's war on Gaza completes one year, the Benjamin Netanyahu-led country's economy has been badly affected by the war with poverty now threatening communities including in areas far removed from the fighting against Hamas.
Mass protests against controversial judicial reforms
Much before the war broke out on October 7, 2023 when Hamas raided Israel, the mass protests against Prime Minister Benjamin Netanyahu's controversial judicial reforms had already weakened Israel's economy. The Hamas attack and the war that followed only dealt a major blow to the battering economy.
According to economist Jacques Bendelac, who warned of possible recession should fighting persist, the Israeli economy “may be solid, but it is struggling to withstand this war that has lasted too long”.
Economy Rebounds, But Growth Sluggish
Although the Israeli GDP, which shrunk by 21 percent in the fourth quarter of 2023, rebounded by 14 percent in the first three months of 2024, according to official data, growth turned sluggish in the second quarter at 0.7 percent. The impact of the war on Israel's economy can be gauged from the fact that the three main ratings agencies have downgraded Israel's debt. Fitch predicted in August that the Gaza war -- already the longest since the war that led to Israel's creation -- could stretch into 2025.
With the war shifting to northern Israel and Hamas ally Hezbollah battling Israeli forces across the border, Israel's credit ratings remain high, but top officials have nevertheless blasted the agencies' moves.
Netanyahu has maintained that the economy was "stable and solid" and will improve when the war ends.
Projects on pause, Tourism Takes A Hit
The ongoing war is a boon for weapons, one of Israel's two main growth drivers besides tech, which is relatively insulated from the war. But, the remaining economic engines of tourism, construction and agriculture "are dying out one after the other", according to Bendelac, professor emeritus at the Hebrew University of Jerusalem.
To exacerbate the problem, Israel stopped issuing work permits for Palestinians after the October 7 attack, creating damaging labour shortages, according to Kav LaOved, an Israeli labour rights organisation. Around 100,000 such permits boosted manpower in the construction, agriculture and industrial sectors besides tens of thousands of Palestinians also working illegally inside Israel.
According to Kav LaOved, only 8,000 Palestinian workers have been exempted from the entry ban to work in factories deemed essential.
Due to the impact of Israel's war on Gaza, construction work has been halted in economic hub Tel Aviv with skyscrapers and transport projects left half-finished.
Tourism has also taken a hit since the Hamas raids of October 7, keeping holidaymakers and religious pilgrims away from the country.
Indicating the impact of the war on the tourism sector, only an estimated 5,00000 tourists--a quarter of the number for the same period the previous year-- visited Israel from January to July, the tourism ministry said.
Long war, slow rebound
Before the protracted war, during the past two decades, Israel's growth has been driven by credit consumption. However, in times of crisis, many families are struggling to repay their loans, according to Bendelac, an Israeli national. Bendelac warned that the combination of high living costs and an economic slowdown will "inevitably result in an increase in poverty."
The Israel-Hamas war has also triggered a humanitarian crisis with the aid organizations in Israel witnessing a growing demand for their services and new faces showing up in food distribution lines. In the parking lot of a shopping center in Rishon Lezion, a city on Israel's coast, the NGO Pitchon-Lev ("Open Heart") provides free baskets of fruit, vegetables, and meat twice a week.
Founder of the NGO, Eli Cohen said that since the war began, they have more than doubled their activities noting that the organization now supports nearly 200,000 families across the country. The new recipients include "young people, families with husbands serving as reservists, former donors, and many who were evacuated due to clashes between Israel and Hezbollah along the northern border," Cohen said.
Over the prospects for recovery, Bendelac said that "the economy always experiences a strong rebound after war." However, he cautioned that "the longer this conflict continues, the slower and more challenging that recovery will be."
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