Israeli economy shows recovery amid fragile ceasefire with Hamas

The Israeli economy has faced many challenges since the Hamas attack on Oct. 7, 2023, and the subsequent war against Iran and its terrorist proxies Hezbollah, Hamas and the Houthis.

Furthermore, the Israeli state budget totaling around $170.9 billion has still not been approved and the fragile ceasefires with Hamas and Hezbollah could collapse at any moment. 

However, Natanel Haiman, head of the Economics Division at the Manufacturers Association of Israel, articulated cautious optimism about a gradual economic recovery in the Jewish state. 

“Consumption is rising. Between September and November 2024, there was a 10.6% increase in industrial product purchases and a 4.6% rise in total credit card transactions. This reflects renewed consumer and business confidence,” Haiman assessed. 

Furthermore, the Tekuma (Revival) Administration has received an initial budget totaling 19 billion shekels ($5.3 billion) to rebuild destroyed communities in southern and northern Israel. 

The rebuilding of these war-torn communities is expected to take several years and cost billions of dollars. Yet, Eliran, a community head from the northern town Ma’alot expressed cautious optimism. 

“The municipality is supporting the reconstruction of the damaged buildings, but it’s still taking time to see results on the ground,” he told The Media Line.

“Roads and damaged infrastructure have already been repaired, but it’s more complicated in the community. Many people have been financially impacted and still haven’t managed to recover. We have an economic aid fund through which we have helped several people, but it’s not enough,” he added.

The Bank of Israel Governor Amir Yaron estimated last year that the war could end up costing the Israeli economy $67 billion in military and civilian expenses during the period 2023 to 2025.

If realized, the current war would become the most expensive war in the history of the modern State of Israel. At the time, Yaron urged the Israeli government to balance expenses for civilian and security needs. 

“The government needs to make sure that it makes the right balances and budget adjustments in light of growing permanent security expenses,” Yaron stated. 

While Israel has the means for economic recovery and the complex post-war reconstruction, it also depends on the fragile ceasefire. 

Dr. Roby Nathanson, CEO of the Macro Center for Political Economy believes that reviving the business sector it the key towards Israel’s post-war recovery. 

“Reconstruction cannot succeed without revitalizing the business sector. People will not return to places without employment or income opportunities. In my view, that is the greatest challenge,” Nathanson assessed. He also stressed the importance of passing the new national budget. 

“The government must pass the budget by the end of March; otherwise, the government could fall. This budget primarily addresses defense and urgent needs but includes very little for recovery programs, economic growth, productivity, or business reactivation,” he argued. 

Even prior to the Oct. 7 attack, there were fewer business opportunities in the northern and southern communities compared to central Israel.

Some 80,000 of the 150,000 businesses in northern Israel are located in the Upper Galilee, the region that was hardest hit by Hezbollah rockets. 

“For businesses in the north, this is a matter of survival. Around 50% of businesses in the restaurant and service industries had to close, and 25% will never reopen. Reconstruction cannot succeed without revitalizing the business sector,” Nathanson said. 

Chen Herzog, chief economist at BDO welcomes the security stabilization while stressing that Israel is still facing economic challenges. 

“2024 was a tough year economically, with a per capita growth decline of 1.5%, meaning Israelis became poorer in real terms,” Herzog explains. 

“We need an effective budget allocation for reconstruction to ensure economic rebound. But as of now, Israel is still operating under last year’s budget framework,” he added. 

While Israeli families and businesses are looking for stability, Haiman concludes by stressing that Israel needs to be able to thrive even amid times of uncertainty. 

“While the current conditions foster optimism and growth, the Israeli business community must be prepared to navigate uncertainty regardless of the circumstances.”