Analysis from Israel's Hapolaim Bank said that launching a large-scale retaliation campaign against Hamas would cost the country at least 6.4 billion Euros, including the need to mobilize reserve soldiers, greatly affecting key economic sectors, especially the high-tech sector, which currently contributes 14% of jobs and 20% of GDP.
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| The explosion at Al-Ahli al-Arabi hospital in the Gaza Strip on the night of October 17 left hundreds of people dead and injured. (Source: X) |
The counterattack was called "Iron Swords"
How will Israel's economy be affected by the shockwaves of the military campaign against the Gaza Strip, launched immediately after the Hamas attack on October 7 that left more than 1,200 people (mostly civilians) dead and 130 others kidnapped?
According to preliminary estimates by Bank Hapoalim, the counterattack, dubbed “Iron Swords,” will cost Israel at least 6.4 billion euros (27 billion Shekels).
The estimate includes the recall of 300,000 reservists from their posts, which would be the largest mobilization since the 1973 Yom Kippur War.
The extent of the damage depends on how the situation develops, that is, how long the war will last.
“It is still unclear how the conflict will develop – whether it will turn into a ground operation that will suppress parts of Gaza for weeks, or an operation launched in the north of the country and how long the reserve forces will be involved,” said Modi Shafrir, head of strategy at Hapoalim Bank.
Since October 7, Israel has responded to Hamas with relentless shelling of the Gaza Strip, while deploying tens of thousands of troops around the area and the northern border with Lebanon to prevent the risk of a second front.
According to the Bank of Israel, “it can now be assumed that the cost of the conflict will amount to at least 1.5% of GDP, meaning that the budget deficit will increase by at least 1.5% of GDP during the year.”
Bank Hapoalim's prediction is based in part on the losses of Israel's previous wars.
According to the Tel Aviv-based Institute for National Security Studies (INSS), the cost of the Second Lebanon War in 2006, which lasted 34 days, was estimated at 2.1 billion euros, equivalent to 1.3% of GDP.
The losses Israel suffered when it launched the Gaza War (or “Operation Cast Lead” which lasted from December 2008 to January 2009) are estimated at 838 million Euros.
Both of these conflicts damaged parts of the country, but they did not last long enough to completely paralyze the entire economy, and so Israel was able to recover quickly in a short period of time.
Past experience has shown that the impact of war on GDP is mainly on personal consumption and tourism. But the high level of reserve mobilization and the possibility of a war lasting for weeks this time could result in more direct damage to the Israeli economy than in previous conflict cycles.
Turning point on the economic front
Nearly a quarter of Israel's industrial activity is located within the southern cities of Ashkelon and Beer Sheva, one of the areas most exposed to rocket fire.
Operated by US giant Chevron, production at Israel's Tamar natural gas field, 25 km off the coast of Ashdod, has been disrupted.
A senior Israeli finance ministry official said the estimated damage on the first day of the war was around 718 million euros. “Houses, infrastructure, roads, barns and agricultural fields. No war has ever caused Israel so much damage, not even a fifth of it, not even the Gulf War, nor the wars in Lebanon and the conflicts in Gaza.”
The spearhead of the country's economy, the high-tech sector, which accounts for 14% of employment and 20% of GDP, is no exception.
“Startup Nation at war,” writes Amir Mizroch, former communications director for Israeli NGO Start-Up Nation Central, on LinkedIn .
In fact, although over the past 10 months, the high-tech sector has been mobilized to the maximum to participate in “pro-democracy” street protests and against the judicial reform project of Prime Minister Benjamin Netanyahu’s government, they are still being seen at the forefront to unite and support the country’s efforts.
“In their daily lives, these men and women are founders, product managers, CEOs, software engineers in startups or multinational technology companies. All have responded to the call to arms. The real horrors are still ahead. But there is an undeniable determination in the Israeli tech sector to support the defense of Israel at both the military and civilian levels,” said director Amir Mizroch.
Today, days after Hamas’ surprise attack, the atmosphere in Israel remains markedly different from that of the country’s previous military conflicts with Hamas. For example, the streets and markets in Tel Aviv and Jerusalem are largely empty and many businesses are closed.
For now, Israel can still count on solid indicators: GDP growth of around 3% (after 6.1% growth in 2022), low unemployment of around 3.3%, high-tech sector still doing well despite a 63% drop in investment in the January-September 2023 period due to the global crisis in the sector and political instability in Israel.
“Israel has no fewer than 98 unicorns compared to just one in 2013 (Waze, acquired by Google), 100 Nasdaq-listed companies, and six times the venture capital investment of Italy,” said Edouard Cuckierman, CEO of Catalyst Investments in Tel Aviv. “And we can count on the country’s culture of resilience.”
Assuming that the military campaign may only last a few weeks, Edouard Cuckierman, also a former reserve officer, said the Israeli economy would soon recover as it had after each previous conflict.
However, other observers point out that the psychological aftershocks created by the Hamas attack, in the context of the failure of the Jewish state's intelligence agencies and security system, which are famous for their ability to predict the situation, could shake investor confidence.
“We are certainly experiencing an event more tragic than the Yom Kippur War, and this could be a turning point on the economic front,” commented David Rosenberg, a journalist at the Israeli daily Haaretz.
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