22.11.2023 Author: Viktor Mikhin

Israel is in danger of economic collapse

Israel is in danger of economic collapse

The aftermath of Hamas’s Operation Al-Aqsa Flood on 7 October has left Israeli companies devastated as settlers face an unfamiliar situation, unprecedented in the absence of government financial injections and aid for them. More than a month into the Hamas operation, the war in Gaza has had a devastating effect on Israeli business activity, with hundreds of companies on the verge of bankruptcy. Economists and financiers estimate that the initial cost of the Gaza war to Tel Aviv is $51 billion, or about 10 per cent of Israel’s GDP.

Israel’s Labour Ministry reports that some 765,000 Israelis, 18 percent of the workforce, are out of work after being drafted into the reserves to fight the Palestinian resistance in the Gaza Strip. According to the Financial Times, there is already mounting evidence of the war’s devastating impact on the Israeli regime’s economic performance. However, the financial measures unveiled by Israeli Prime Minister Benjamin Netanyahu and his finance minister, Bezalel Smotrich, have drawn condemnation from the business community. In an attempt to ease the growing economic anxiety, the Israeli military cabinet announced new regulations that experts believe will only lead to a worsening of the country’s economic situation.

In a related development, a group of 300 leading Israeli economists called on Netanyahu and Smotrich to “come to their senses”. “The severe blow that has been dealt to Israel requires a fundamental shift in national priorities and a massive reallocation of funds to repair the damage caused by the war, assist the victims and rebuild the economy,” the open letter said. The Financial Times quoted Eugene Kandel, chairman of the Start-Up Nation Policy Institute think tank and one of the economists who signed the letter, as saying that the Israeli government “has yet to demonstrate that it has grasped the gravity of the situation”.

The economists expressed grave concern that Netanyahu’s promised financial packages for companies at high risk of bankruptcy will not be enough if the regime’s economic prospects continue to deteriorate. And by all accounts they will deteriorate until they lead to the eventual collapse of the Israeli economy. According to the FT, others argue that the support package must be accompanied by a complete rethink of public spending priorities.

Netanyahu’s coalition partners from the ultra-orthodox and settler parties continue to funnel huge sums into projects that critics say have no place in a war economy, such as a programme to encourage religious observance among students. As a result, hundreds of companies have not received the financial support the prime minister promised. According to Foreign Policy magazine, Israel’s wartime economy cannot hang on forever and may slip into recession very soon, as the regime’s massive military mobilization will lead to a serious economic downturn.

At the top of the list of sectors that will take the brunt of a prolonged war in the Gaza Strip are oil and gas, tourism, health care, retail and the development of modern technology. Israel’s economy is estimated to have entered the war with $200 billion in reserves and $14 billion in military aid from the United States. Yet experts say the ongoing war in Gaza will cost the Israeli economy billions of dollars more, and recovery will take much longer than in the past. In fact, according to economists and analysts, the war in Gaza is expected to severely damage the regime’s economy in the short and long term.

Global rating agencies such as Fitch Ratings, S & P, and Moody’s Investors Services have warned that further escalation of the war will lead to a downgrade of the regime’s sovereign debt rating. S & P has already downgraded Israel’s credit outlook to negative, citing the risks of a widening war in Gaza, which would have a more pronounced negative impact on the economy. The rating agency noted that “the negative outlook reflects the risk that … the war could spread more widely or affect Israel’s credit metrics more negatively than we expect”.

Foreign Policy, citing political analysts, reported that the cost of the previous two wars – Israel’s war against Lebanon in the summer of 2006 and against the Gaza Strip in 2014 – was as much as 0.5 per cent of GDP and mostly affected the tourism sector. But this time, the fall is estimated to be up to “15 per cent in annual terms” in the last quarter of this year. This comes at a time when a long list of airlines has stopped flying to both Israel itself and the occupied Palestinian territories. The cancellation of flights will further damage Israel’s economy, especially the tourism industry, on whose revenues the regime relies heavily. It has also proved problematic for hundreds of thousands of anxious Israelis seeking to leave the country amid the war and daily rocket salvos fired by Palestinian resistance forces from the besieged Gaza Strip.

Rocket attacks that seem to have no end in sight. In the 30 days since the Hamas operation began, hundreds of thousands of Israelis have been displaced or fled settlements near the Gaza Strip, and all indications are that they will not return. According to Israel’s tourism ministry, hotel rooms are almost entirely occupied not by foreign tourists but by Israeli settlers seeking asylum and making plans to leave the occupied Palestinian territories. Many have already left Israel by sea, at least an American ship evacuated Israelis from the port of Haifa. More and more Israelis are planning to leave, and online campaigns are beginning to appear that emphasize that all Israelis intend to leave the settlements near Gaza and other areas for good.

Since Netanyahu came back to power in early January, emigration of intellectuals has become commonplace among Israelis who were already dissatisfied and many were simply furious with their new government. Now, with rockets flying daily and growing anger at Netanyahu and his cabinet, the emigration of highly qualified Israelis has increased even more.

As the regime is going through one of its most difficult times, one resident told Israeli media, “We fled to Cyprus immediately after the first siren on Saturday. We are a family of parents and four children. My intuition told me that this was not just another round and my nerves were on edge during the 10 months we lived in this country that has gone mad. We bought our tickets at 10am and by 5pm we were in Paphos. Now we are here, trying to calm down and start a new life”.

As the war in Gaza drags on, many Israelis, along with their families from all over the occupied Palestinian territories, and indeed from Israel itself, have either already travelled abroad or have declared their intention to do so. Their main concern is that they no longer have security, as the largest war against the Gaza Strip in modern history risks spilling over the borders and expanding. They fear for their lives and regret having come to Israel.


Victor Mikhin, Corresponding Member of the Russian Academy of Natural Sciences, especially for online magazine “New Eastern Outlook”.

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