Before the conflict between Israel and Hamas broke out, Israel's economy was on a relatively solid footing, logging growth of 6.5% in 2022. However, in recent times, the Israeli economy has had to struggle to cope with challenges and negative impacts from the conflict with the Hamas movement in the Gaza Strip.
The Israeli Ministry of Finance recently released data which shows that the country's fiscal deficit swelled to 7.6% of gross domestic product (GDP). Analysts say that the surge is attributed to the government's mounting expenses for the ongoing conflict, and payments to soldiers, displaced residents, and affected businesses.
Last March, Israeli lawmakers gave their final approval to an amended 2024 state budget that adds tens of billions of shekels to fund Israel's war against Hamas.
However, the additional money cannot compensate for the damage caused by the costly war that has lasted more than nine months.
According to the Israeli Ministry of Finance, as of the end of June 2024, the ongoing war with the Hamas has cost the country 21.8 billion USD. It is forecast that the budget deficit will continue at a higher intensity until the third quarter of this this year, and will wind down and reach the set target.
Governor of the Central Bank of Israel Amir Yaron emphasised that as long as the conflict continues, GDP growth will continue to decline, making economic development goals even more distant.
Recently, Houthi forces have carried out a series of attacks on ships in the Red Sea, causing the southern port of Eilat — the country's busiest port before the war — has been virtually shut down since October 2023.
Meanwhile, escalating tensions with Hezbollah have also forced tens of thousands of Israelis to evacuate communities near the Lebanese border.
More worrying, the conflicts have also caused a decline in demand for Israeli exports, and shook foreign investors' confidence in this Middle Eastern country.
Officials of the Israeli Ministry of Finance are concerned that the decrease in foreign investment capital will not only impact financial resources, but also the access to new technology, innovation, and labour productivity.
In addition, a lack of human resources is also one of the serious consequences that the Israeli economy must suffer as a result of the conflict.
The conflict in Gaza has caused tens of thousands of foreign workers to leave Israel, and Palestinian workers from the West Bank and Gaza Strip are also banned from entering for security reasons. This situation plunges the Israeli agricultural industry into the greatest human resource crisis in its history.
Although about 17,000 foreign workers in various fields have returned to Israel, the agricultural sector's human resource crisis continues. Most other economic sectors of Israel have also been affected. Israeli media reported that since October 7, 2023, about 46,000 businesses in the country have been forced to close.
In that context, the Central Bank of Israel recently trimmed its economic growth estimates for 2024 and 2025 to 1.5% and 4.2% respectively, assuming the conflict in the Gaza Strip will continue at a higher intensity.
Governor of the Central Bank of Israel Amir Yaron said that increasing geopolitical uncertainty could continue to bring many risks to the country's economy.
Analysts say the prolonged conflict in the Gaza Strip is a major challenge for the Israeli economy. Despite having a solid foundation and holding a leading position in the world in the field of innovation and technology, it will take this Middle Eastern country's economy a long time to return to normality from the consequences of the war with Hamas.
