Israel’s Economic Losses Since October 7

Nations are built and sustained through their economies, and it was through this lens that the Israeli entity sought to solidify its existence — by building a dynamic, productive economy. With relentless efforts and extensive Western support, Israel emerged as a technological leader and a hub attracting major corporate investments in research and development.

Internally, this translated into a rise in startups, a general drop in unemployment, and an increase in growth rates. Externally, Israel became one of the region’s strongest economies — even globally. According to the International Monetary Fund, Israel ranked as the 25th largest economy in the world and had the third-highest number of companies listed on the NASDAQ.

But the reality remains: no economy can thrive under an unstable entity. So, what have been the economic losses of the Israeli economy from October 7, 2023, until now?

Economic Indicators

The key indicators for assessing the health of any economy include currency value, growth rate, inflation, trade balance, and public debt. In the case of Israel, the economic fallout from the war has led to the following:

1. The shekel depreciated by 5% against the U.S. dollar.

2. Growth dropped from 6.5% in 2022 to 2% in 2023. GDP grew by just 1% last year, primarily driven by increased government military spending. Business sector growth declined by 0.6%, and per capita GDP decreased by 0.3%, confirming that the limited growth was war-related.

3. Annual inflation rose from 3.2% in December 2024 to 3.8% in January 2025. This increase continues to prevent the Bank of Israel from cutting short-term interest rates, thus hindering production and future growth.

4. The trade deficit widened, from $2.73 billion to $3.64 billion — and it would have been higher if not for a sharp drop in imports due to Yemeni attacks. Imports fell by 42%, while exports declined by 18%.

5. Public debt increased from 61.3% in 2023 to 69% in 2024, accompanied by a jump in the budget deficit from 4.2% to 6.2%. Additionally, real estate prices in Tel Aviv dropped by 10%, indicating weakening investor confidence.
   Overall, the Bank of Israel estimated war-related costs between 2023 and 2025 at $55.6 billion.

Israel’s Credit Rating

Over the past year, both Fitch and Moody’s downgraded Israel’s credit rating and maintained a negative outlook, warning of further possible downgrades.

In its updated March 2025 report, Moody’s noted:

“Uncertainty about Israel’s long-term security and economic prospects is significantly higher than usual. The advanced technology sector faces substantial risks, given its critical role in driving economic growth and contributing heavily to tax revenues. These negative developments may severely impact government finances and suggest further erosion in institutional quality.”

In September 2024, Moody’s downgraded Israel’s rating two notches — from A2 to Baa1 — citing:

“Deterioration in Israel’s institutional quality and governance,”
especially in financial management and increased wartime expenditure needs. Lower credit ratings lead to higher borrowing costs for the government, companies, and households.

Among the challenges facing Israel’s credit profile, the agency highlighted:

• Intense geopolitical exposure,

• A polarized political system hampering effective governance and policymaking,

• Low participation rates among religious minorities, especially Arab communities and the Haredim (ultra-Orthodox),
  which contribute to greater income inequality and rising social tensions.

Economic Sectors Impacted

The war has affected different economic sectors and labor markets unevenly:

• At the outbreak of the war, Israel barred Palestinian workers from the West Bank, and most foreign workers left the country. As a result, traditional sectors like construction, infrastructure, manufacturing, and agriculture were heavily affected.
  This is expected to slow housing development, raise real estate prices, and disrupt construction companies due to stalled projects. Additionally, agricultural output fell, and the prices of fruits, vegetables, and farm products rose.

• The high-tech and advanced manufacturing sectors were also impacted as many of their workers were conscripted into reserve forces. Thousands of Israelis lost jobs due to physical or psychological injuries sustained during the war.

• The tourism sector is projected to suffer a near-total halt for several months.

Capital Flight

It is well known in economic theory that capital is cowardly — investors flee at the first sign of instability. According to the Henley & Partners 2024 report, approximately 1,700 millionaires left Israel since 2023, seeking investment migration opportunities to reduce risk and find alternative residence options. The report also noted a 232% surge in Israeli settler applications for investment-based emigration in 2023.

The renewed war in Gaza and the increasing need to fund military operations threaten to collapse Israel’s already strained public services. On top of that, the looming threat of economic sanctions and international isolation — in response to Israel’s conduct in Gaza — is expected to further diminish settler living standards.

These combined factors risk driving down living standards, disrupting growth engines, and prompting emigration of both taxpayers and skilled labor. Israel is a small entity with very limited natural resources, heavily reliant on human capital for growth. Without it, Israel faces a major economic collapse.