The war in Gaza has become the most expensive in Israel's history, with an expected total cost of NIS 250 billion ($67.4 billion) by 2025. In the fourth quarter of 2023, economic output fell by 21.7%. UNN writes with reference to Bloomberg.
The war in Gaza has become the most expensive in the country's history, and the central bank estimates that the total cost of the conflict by 2025 will be NIS 250 billion (6 67.4 billion). In the fourth quarter of 2023, economic production declined by 21.7% year-on-year.
A crucial test will be the government's ability to reduce the ratio of defense spending to GDP to a reasonable level within a few years.Otherwise, we may fall back into another lost decade
According to him, defense spending before the war was at a record low – 4.5% of GDP. This year it will double to 9%. Former Treasury Secretary General David Brode notes that Israel has entered the current conflict with a large reserve of foreign exchange reserves and low public debt, which was about 62% to GDP, but is now expected to grow to 67%.
However, some experts warn that the country's long period of growth — more than two decades interrupted only by the pandemic — is under threat. The biggest risk lies in the possible outflow of investment from a key technology sector if international giants raise rates and startups move to other regions in search of workers.
Unlike almost any other war in our history, this will not be a short episode from which we can quickly recover. This will take at least two to three years until we figure out how to protect our borders
So far, the Israeli government has made some minor spending cuts and introduced new taxes, but has mostly relied on selling bonds to cover the growing budget deficit — an approach that economists call unsustainable.
Budget pressures caused by the war are exacerbating divisions in Israeli society, where the first two deciles of the population pay 60% of all direct taxes. These workers also form the core of the military reserve. When Hamas attacked and about 300,000 reservists returned to service, the tech industry suddenly faced a labor shortage, and businesses in and around Tel Aviv lost some of their best customers.
recall
Israel claimed that it had secured control over Gaza's southern border with Egypt, achieving the key goal of the Rafah offensive. It aims to destroy Hamas without crossing the red lines set by US President Joe Biden.