The Swords of Iron war will have a significant and long-term effect on the Israeli economy. Last week, the Ministry of Finance and the Bank of Israel presented initial forecasts for the economic impact of the war. These predictions refer to a war on one front against Hamas, with incidents in the north that will not expand into a regional war. The Ministry of Finance estimated that the cost of overall fighting – direct and indirect, security and civil – is about 1 NIS billion per day. This amount is significantly higher than the budget cost of previous operations (such as Protective Edge in 2014) or the Second Lebanon War. The hefty amount is due to the extensive IDF mobilization and the enormous damage of the surprise attack on October 7, which caused the evacuation of about 125,000 residents of the Gaza Strip and the communities near the Lebanese border. Together with the costs of the reconstruction of the communities of the western Negev, the total cost of the war is estimated to be NIS 150-200 billion. This is a significant amount that is about 10 percent of the GDP of the State of Israel.
In the immediate term, economic data show a weakened shekel and stock market, rising unemployment, and a loss of confidence by investors in Israeli government bonds. The shekel exchange rate fluctuations would have been more dramatic had it not been for the intervention of the Bank of Israel. Already in the first days of the war, the Governor of the Bank of Israel announced an allocation of approximately $30 billion for intervention in the foreign exchange market out of reserves of approximately $200 billion. This announcement instilled confidence and prevented a sharper decline. Compared to the responsible performance of the Bank of Israel, the government has not yet managed to handle the developments in proper fashion. Although the government has approved an aid package for workers and business owners, it is still too early to say whether this will be adequate help to the 760,000 workers who are unable to work in their jobs or enable the survival of small businesses. The Israeli government must fundamentally change the order of national priorities and divert significant budgets to deal with the damages of the war.
For more economic data and other data on the economy collected by INSS, click here.
The Swords of Iron war will have a significant and long-term effect on the Israeli economy. Last week, the Ministry of Finance and the Bank of Israel presented initial forecasts for the economic impact of the war. These predictions refer to a war on one front against Hamas, with incidents in the north that will not expand into a regional war. The Ministry of Finance estimated that the cost of overall fighting – direct and indirect, security and civil – is about 1 NIS billion per day. This amount is significantly higher than the budget cost of previous operations (such as Protective Edge in 2014) or the Second Lebanon War. The hefty amount is due to the extensive IDF mobilization and the enormous damage of the surprise attack on October 7, which caused the evacuation of about 125,000 residents of the Gaza Strip and the communities near the Lebanese border. Together with the costs of the reconstruction of the communities of the western Negev, the total cost of the war is estimated to be NIS 150-200 billion. This is a significant amount that is about 10 percent of the GDP of the State of Israel.
In the immediate term, economic data show a weakened shekel and stock market, rising unemployment, and a loss of confidence by investors in Israeli government bonds. The shekel exchange rate fluctuations would have been more dramatic had it not been for the intervention of the Bank of Israel. Already in the first days of the war, the Governor of the Bank of Israel announced an allocation of approximately $30 billion for intervention in the foreign exchange market out of reserves of approximately $200 billion. This announcement instilled confidence and prevented a sharper decline. Compared to the responsible performance of the Bank of Israel, the government has not yet managed to handle the developments in proper fashion. Although the government has approved an aid package for workers and business owners, it is still too early to say whether this will be adequate help to the 760,000 workers who are unable to work in their jobs or enable the survival of small businesses. The Israeli government must fundamentally change the order of national priorities and divert significant budgets to deal with the damages of the war.
For more economic data and other data on the economy collected by INSS, click here.