Israel’s Economy Faces Significant Challenges Amid Ongoing War
Israel’s economy is experiencing a sharp slowdown due to the prolonged conflict. The country’s GDP contracted by 4.1% in the weeks following the October 7 Hamas-led attacks, and the downturn continued into 2024, with additional declines of 1.1% and 1.4% in the first two quarters.
The war has significantly impacted various sectors, including agriculture and construction. Agriculture has been particularly affected, with 30% of agricultural areas in conflict zones, leading to a 60,000-ton increase in food imports and double-digit price increases for agricultural products. The construction sector has also slowed down by nearly a third in the first two months of the war.
Moody’s has downgraded Israel’s credit rating for the second time this year, citing the geopolitical risks and significant adverse effects on Israel’s creditworthiness. The agency noted that the war’s costs are expected to reach approximately $66 billion by 2025, representing over 12% of the country’s GDP.
The prolonged conflict is also affecting investor confidence and business growth. The high-tech sector, a traditional growth driver, is under strain due to the war’s impact on international cooperation and foreign investment. Each month of conflict increases indirect costs exponentially, threatening the entire economy.
The government is facing tough choices to allocate resources, including potential cuts in spending and increased borrowing. This could jeopardize Israel’s ability to maintain its current military strategy and exacerbate economic instability.
