Israeli Economy Entering Uncharted Waters Amidst High War Costs

October 21, 2024

1:26 PM

Reading time: 3 minutes


Economists and financial experts are beginning to express alarm at the long-term economic implications of the war Israel has been forced to fight against Hamas in the Gaza Strip, Hezbollah in Lebanon and a all of Iran's other terrorist proxies, as well as Iran itself. Direct costs of weapons, ammunition and military equipment have been enormous and continue to grow. Ancillary government costs such as paying for evacuated residents of northern communities to stay in hotels, unemployment benefits and the lowered economic output of the country due to a sharp decline in tourism and agriculture, among other sectors, have also been high.

Taxes have already been raised and more increases are likely going forward. Foreign direct investment has also dropped and international corporations with operations in Israel have cut their workforce here and cancelled projects.

According to the Stockholm International Peace Research Institute, a think tank which keeps track of military spending worldwide, Israel was spending around $1.8 billion a month on the IDF before this war began. That number has increased to close to $4.7 billion a month by the end of the last fiscal year.

While military spending has increased, Israel's Gross National Product has dropped significantly, although the numbers for the latest fiscal quarter have not yet been released.

The labor market is also going through severe disruptions, with large numbers of citizens being mobilized for service in the IDF reserves for long periods of time.

There are some bright spots, including low unemployment and a relatively low level of government debt. The TA-35 stock index is up 10.5% on the year and hi-tech companies continue to attract investment.

However, economists warn that there is a high likelihood of rising taxes and decreased public services going forward.

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