Aside from the economic effects of the Israel-Hamas war on the global scale, the economies of Israel and Palestine have also been severely impacted by the war, with even worse scenarios on the way if the war escalates.
The October 7 attack by Hamas on Israel caused an unprecedented blow to the Israeli economy, which can be attributed to the call-up of more than 360,000 reservists (equivalent to 8% of Israel’s labor force) for the battle, the complete stoppage of Israel’s tourism revenues, and the cancellation or suspension of many business deals and projects of Israel at the regional and global level.
Israel’s Ministry of Finance recently estimated that the war in Gaza is costing Israel $260 million a day. Shortly after the war began in October, Israel’s central bank pledged to support the Israeli currency with $45 billion, or 20 percent of the country’s foreign exchange reserves, to perhaps cushion the economic effects of the war.
However, and according to pre-war forecasts, Israel’s economy was expected to grow by more than 3 percent this year, but the fallout from the military conflict has now sharply reduced that forecast to less than 1 percent, provided that new players not enter the war with Israel and the Gaza war continues for Israel only against Hamas.
Numerous reports have also been published about the consequences of the war on the Israeli economy. For example, the Bloomberg said early in November that Israel’s economy, from small restaurants to large high-tech companies and a large gas field operated by the Israeli company Chevron, have all been convulsed by the war against Hamas.
The Times of Israel also stated in a report last week that the mobilization of 360,000 reserve forces and the evacuation of 250,000 Israelis from their homes due to the dangers of the war have caused many companies to suffer lack of labor force. “Restaurants and shops have emptied, airlines have canceled most flights to Israel, and tourists have stopped traveling almost entirely, a major natural gas field has been shut down, crops have perished due to labor shortages, and factories have lost tens of thousands of workers to the war, having either joined the war or fled away from it,” the Times of Israel wrote.
Good to mention that Israel relies heavily on some 130,000 Palestinian workers from the West Bank and has tens of thousands of foreign workers, most of whom have now returned to their countries because of the war.
Government’s economic measures, not even close to enough!
In early November, Israel’s Ministry of Finance presented an economic aid plan that included $1 billion in grants for war-affected businesses in Israel. Critics, however, say that this amount is not enough at all and have demanded that some of the billions of dollars allocated to housing and welfare projects of ultra-Orthodox parties be returned and used to compensate for the damages caused by the war.
The Central Bank of Israel has also confirmed the economic consequences of the war on Israel. On November 9, the head of Israel’s central bank said that the war with Hamas had been a “big shock” to the Israeli economy, with effects far greater than initially estimated.
Amir Yaron, head of the Central Bank of Israel, said during a trip to Washington that Israel’s GDP will decrease by 1 percent in 2023 and 2024, and the country’s debt to GDP ratio will increase from “currently around 60 percent” to 65% will reach in 2024.
The impact of the Gaza war on the Palestinian economy is even worse
The economic consequences of the war for Palestine are much more severe, and the continuation of the war will affect the Palestinian economy much more than Israel.
According to a report published by the United Nations Development Program and the United Nations Economic and Social Commission for Western Asia (ESCWA), nearly two months after the war, poverty among the Palestinians has increased by more than 20 percent and the gross domestic product of Palestine has decreased by 4.2 percent.
The report also predicts that if the conflict drags into the third month, the Palestinian economy is likely to face a loss of $2.5 billion and 660,000 people will fall into economic poverty by the end of the year. These figures mean that the total Palestinian economy will shrink by 12% in less than two months from now.