Israel’s economy is shrinking significantly as it continues to fight Hamas, and this trend will risk its ability to resist future attacks.
By the end of 2023, Israel’s GDP had decreased by nearly 20%, which surprised analysts who predicted that the decrease would only be by 10%. Regardless, it is clear that Israel’s war against the Palestinian terrorist group Hamas, which is in its fifth month, is the ultimate cause of this decline.
One factor is consumerism. Consumer confidence in Israel declined last year by 5.6 points and continues to do so. Israelis are not spending and investing nearly as much as they did in previous years. This is due to Israelis being concerned about the possibility of another deadly invasion and attack within their borders.
Another factor is the workforce shortage, particularly in the agricultural fields. Widespread panic has led to many foreign workers leaving in fear of a future attack. Following the Oct. 7 attack, Israel, understandably, banned its Palestinian workforce of 150,000 from working in the country. It has recently admitted about 10,000 to return, but the damage is done.
A depletion of Israeli workers has contributed as well. At the start of the war, the entire Israel Defense Forces was mobilized for war against Hamas, and the government called in nearly 400,000 others as reservists. However, this decision sucked many workers out of Israel’s economy, causing many small businesses to close down as the war drags on.
Optimists have faith in the historical resilience of the Israeli economy to bounce back from this major setback. Because of its high level of foreign investment and direct access to offshore nonrenewable energy sources, analysts such as those at the Heritage Foundation believe that “Despite the constant threat of terrorism, Israel’s modern market economy is fundamentally sound and dynamic.”
However, skeptics wonder if that will be the case this time around as well, given the cost and scale of Israel’s military operation in Gaza and the hostile state of affairs in the Middle East. If Hamas’s attack on Israel succeeded in doing anything, it was stirring the pot between Israel and its enemies.
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Inspired by Hamas’s successful terrorist attack, several other insurgent groups have taken action since. The Yemeni Houthis have besieged the Suez Canal trade route and waged war on Western naval forces. The Lebanese Hezbollah now frequently exchanges missile strikes with Israel. Iran has struck several surrounding pro-Israeli organizations, arousing the ire of its neighboring nations.
If any of these interactions turn into full-scale wars, the lone Middle Eastern capitalist state may not be able to recover its economy in time to defend itself from future, deadlier Oct. 7-esque invasions.
Parker Miller is a 2024 Washington Examiner winter fellow.