Can Israel’s economy withstand the conflict?


Following evacuation from their homes on the border with the Gaza Strip, tens of thousands of Israelis are now staying in other parts of the country. Many who live along the northern border with Lebanon have also moved to safety. The total number of Israelis who have evacuated is estimated between 200,000 and 250,000. Additionally around 360,000 reservists have also so far been called up to the military. Businesses have shut down in the zones that locals have evacuated from. What’s more, since the Hamas attack on October 7 that killed 1,200 Israelis and foreigners and sparked the current conflict, tourism has ceased, cutting off one of the country’s main sources of income. Hardly any foreign airlines still fly to Israel, Dan Ben-David, a professor and the head of the Shoresh Institution for Socioeconomic Research based at Tel Aviv University, told DW.

So far this rupture to economic life remains under control, he said. “But the impact depends on a whole range of variables. How long will the war last? Will Hezbollah intervene in the war? And if the war continues, how long will we need the reservists?” If 360,000 people are in the army, then many spouses will have to forgo working in order to care for children, especially since many schools have been closed, Ben-David added.

The war will also put major strain on another key sector, the tech industry. ”In Israel, only around 10% of employees work in the high-tech sector but they are responsible for over 50% of our exports,” Ben-David said. Most of these workers are relatively young and now serving in the military in Gaza or on the Lebanese border. The problem is not with percentages, where one might think that the gross domestic product (GDP) would drop by 20% if 20% of the workforce is drafted into the army, he explained. Instead, it centers on who exactly these recruits are: They are young, well educated, and highly productive.

By contrast, those who haven’t been conscripted tend to have lower productivity, the researcher said. Gilad Malach, director of the ultra-Orthodox society program at the Israel Democracy Institute, estimates that almost half of all ultra-Orthodox men do not work. They and their often large families receive billions in state subsidies that Prime Minister Benjamin Netanyahu’s ultra-Orthodox coalition partners would like to increase even further.

“Because we are so dependent on the high-tech industry, which is both good and bad, we have put all our best eggs in one basket,” Ben-David argued, adding that a setback in this area impacts the entire country.

In the past, the tech industry has buffered the worst effects of economic crises, helping Israel emerge from recessions more quickly and avoid economic downturns that hurt other parts of the world. After the second intifada — a period of violence and Palestinian uprising between September 2000 to February 2005 — the country’s economy was in bad shape. “But the economic upturn that followed was phenomenal because tech was the main driver of growth,” Ben-David said. “Then came the Great Recession of 2008 and 2009, the worst recession in the Western world since the Great Depression of the 1930s. But Israel didn’t even feel it because the high-tech industry around the world barely felt it. And because tech is very important here, we didn’t notice anything.”

Israel experienced the COVID-19 pandemic in a similar way. While every country was affected by the pandemic, with millions barely working for some time, Israel recovered more quickly than most thanks to the strength of its tech industry. Ben-David concludes that if the war with Hamas does not last too long and Hezbollah does not enter the war, then the Israeli economy could quickly regain its former strength.






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