Israel’s war in the Gaza Strip will cost up to 200 billion shekels ($51 billion), financial newspaper Calcalist reported on Sunday, citing preliminary figures from the Finance Ministry.
The daily says the estimate, which is equivalent to 10% of gross domestic product, is based on a war lasting eight to 12 months; on the fact that it is limited to Gaza, without the full participation of Lebanese Hezbollah, Iran or Yemen; and about 350,000 Israelis enlisted as military reservists who will soon return to work.
Calcalist said half of the cost would go toward defense spending, which amounts to about 1 billion shekels per day. Another 40 to 60 billion shekels would come from lost revenue, 17 to 20 billion shekels would go to compensating businesses, and 10 to 20 billion shekels would be spent on rehabilitation.
Finance Minister Bezalel Smotrich previously said the Israeli government was preparing an economic aid package for those affected by Palestinian attacks that would be “bigger and broader” than during the COVID-19 pandemic.
On Thursday, Prime Minister Benjamin Netanyahu said the state was committed to helping all those affected.
“My directive is clear: open the taps and channel funds to those who need them,” he said without giving figures. “Just like we did during COVID. Over the last decade we have built a very strong economy here, and even if war imposes economic prices on us, as it does, we will pay them without hesitation. ”
In the aftermath of the war, S&P lowered Israel’s rating outlook to “negative”, while Moody’s and Fitch put Israel’s rating on review for possible downgrade.
The financial toll is already heavy. Israeli stocks have been the worst performing in the world since the fighting began. Tel Aviv’s main index is down 15% in dollar terms, the equivalent of nearly $25 billion, according to Bloomberg.
The shekel has fallen to its lowest level since 2012 – despite the central bank announcing an unprecedented $45 billion bailout – and is heading for its worst annual performance in the century. The cost of hedging against further losses has soared.
Household spending has collapsed, causing a major shock to the consumption sector, which accounts for around half of gross domestic product.
Private consumption fell by almost a third in the days following the outbreak of war, compared to an average week in 2023, according to payment system clearinghouse Shva. Spending on items such as leisure and entertainment plunged by as much as 70%.
By one measure, the decline in credit card purchases was more disastrous than what Israel experienced at the height of the pandemic in 2020, according to Tel Aviv-based Bank Leumi.
“Entire industries and their offshoots cannot function,” said Roee Cohen, president of a small business federation. “Most employers have already decided to put their staff on unpaid leave, which affects hundreds of thousands of workers.”
Israel’s central bank downgraded its economic outlook on October 23, but still forecasts growth above 2% this year and next – provided the conflict is contained.
Even though some construction sites are reopening, many workers are missing. The industry depends heavily on the 80,000 Palestinians living in the West Bank, a region subject to a security lockdown since mid-September and where unrest has increased since the start of Israeli airstrikes and the near-total blockade of Gaza.
A shutdown of construction and real estate, which contributes 6% of Israeli tax revenues, will curb government revenues and could trigger a new surge in prices in a real estate market that has been among the most expensive in Europe and the Middle East in recent years, according to Bloomberg.
About 15% of Israel’s tech workforce has been called to reserve duty, estimates Avi Hasson, chief executive of Startup Nation Central, a nonprofit group that tracks the sector. Those numbers are even higher at startups, which tend to employ younger workers, he said.
Lior Wayn, CEO of Mica, an artificial intelligence company specializing in mammogram analysis, said he was trying to keep operations as normal as possible after several employees were affected by the attacks.
Among 500 tech companies surveyed last week, nearly half reported the cancellation or delay of an investment deal. Of those surveyed, including local and multinational companies, more than 70% said major projects were being postponed or abandoned.
Even as businesses say they are learning to adapt, the fate of many suggests the crisis will leave lasting scars on the Israeli economy.