Israel's Economy Feels The Strain Of Ongoing Hamas Conflict

The Hamas conflict has brought severe disruptions to the country's workforce, consumer spending, and financial markets.

War is not a profitable business for everyone involved.

The escalating conflict with Hamas is testing the resilience of Israel's $520 billion economy, particularly as the situation enters a more critical phase. The unprecedented mobilization of 350,000 reservists has depleted the workforce by 8%, with the tech sector, a significant driver of the economy, facing disproportionate challenges. The turmoil has also resulted in the displacement of over 120,000 Israelis, adding to the nation's problems.

Widespread Economic Disruptions

The combination of large-scale military mobilization and partial closures in various sectors has led to a swift downturn in economic activity, affecting everything from financial services to agriculture. This has drawn comparisons to the economic disruptions experienced during the Covid-19 pandemic, highlighting the severity of the current situation.

Mizrahi-Tefahot, a leading Israeli bank, estimates the government is losing $2.5 billion monthly, and consumer spending has significantly dropped, as indicated by data from the Shva payments-system clearinghouse. The tech sector has not been spared, with approximately half of the 500 high-tech firms surveyed reporting disruptions in investment agreements. Bank Hapoalim projects the economic toll of the conflict to be at least 27 billion shekels, or 1.3% of the country's GDP.

Tel Aviv Main Index (TA35) - TradingView
Tel Aviv Main Index (TA35)

Looking To The Future

The initiation of the conflict on October 7 came in response to aggressive actions by Hamas, a group classified as a terrorist organization by the US and EU. The subsequent military campaign has resulted in numerous casualties and a significant humanitarian crisis. In an attempt to mitigate the economic fallout, the Israeli government has promised a substantial stimulus package, although it has faced criticism for potentially being inadequate. Financial markets have reflected this instability, with Israeli stocks plummeting and the shekel reaching its lowest value since 2015.

Shekel vs dollar (TradingView)
The Israeli Shekel has plunged against the dollar.

Prime Minister Benjamin Netanyahu has warned of a prolonged military campaign, underscoring the uncertainty surrounding the long-term economic implications of the conflict. Despite the ongoing turmoil, there are voices within Israel advocating for a path to coexistence, emphasizing the need for mutual understanding and acknowledgment of the pain experienced on both sides.

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