Israel's economy under attack: Recession looming after Iran conflict!

Israel's economy under attack: Recession looming after Iran conflict!

The current situation in Israel has profound economic implications, especially given the war against Iran and Hamas. Loud FR The Israeli economy, one of the wealthiest in the world, could slip into recession. Renowned economist Zvi Eckstein, who is also a former deputy governor of the National Bank, points out that the infrastructure has been severely damaged by attacks from Iran, requiring massive repairs.

Around 2,000 Israelis had to be evacuated in the first four days of the conflict. These measures not only have an impact on the civilian population, but also on the economy. Many small businesses are forced to remain closed as the Home Front Command prohibits non-essential activities.

Consequences of war and costs

The enormous costs of war pose a particular challenge. A defense missile from the “Arrow 3” system, which is used for air defense, is estimated to cost up to four million dollars. Eckstein estimates that around 75 percent of the war costs go to equipping these expensive missile shields. In total, the cost of the war could be up to 40 billion Israeli shekels (around 10 billion euros). These estimates are based on the assumption of a one-month war, although the economic burden would increase significantly if the war lasted longer.

The Israeli central bank has already lowered its growth expectations from 3.0 to 2.3 percent. This comes amid a change in everyday life for many Israelis who suffer under the constant threat of rocket fire. Loud daily news Living conditions are changing and traffic in the cities has decreased drastically, while the mobilization of around 300,000 reservists is affecting retail and catering.

Given these circumstances, Eckstein predicts negative economic growth of 2% for the current year. Predicted growth figures of 3.5% were considered optimistic. Declining tax revenues and rising war spending could even double the national debt.

The role of the high-tech industry

Despite the serious challenges, there is also positive news from the high-tech sector. This sector performs surprisingly well; output increased by 1% while employment fell by 1%. The high-tech sector is responsible for over 48 percent of Israel's exports and contributes 18.1 percent of economic output. Over 14 percent of employees work in this sector, making it a crucial driver of the Israeli economy.

However, the conflict also left its mark on the financial markets. The TA-35 stock index has fallen since the clashes began and the Israeli shekel has hit its lowest level against the US dollar in eight and a half years. Inflation is 3.8 percent and the key interest rate is 4.75 percent.

Prime Minister Benjamin Netanyahu has already stated that this conflict “could become a long war,” further increasing uncertainties about Israel’s future economic situation. Experts like Joseph Zeira warn of serious immediate economic impacts that could worsen in the coming months.