A stock market ticker screen in the lobby of the Tel Aviv Stock Exchange, in the center of Tel Aviv, March 15, 2020. Photo courtesy of Flash90.
While it has shown remarkable resilience, the economy has been one area where Israel has clearly suffered significant losses in terms of lost income from the collapse of the tourism industry, the cost of property damage, the cost of war materiel and the cost of rehabilitation. It will take years to recoup the losses, and even then, it is uncertain whether the economy will be as strong as it was before Oct. 7.
One indication of the shape of the economy is the downgrading by major ratings services. S&P and Fitch both reduced the country’s rating from A+ to A. Moody’s Investors Service warned that “uncertainty over Israel’s longer-term security and economic growth prospects are much higher than is typical, with risks to the high-tech sector particularly relevant, given its important role as a driver of economic growth and significant contributor to the government’s tax take.”
Brain Drain
Indeed, early in the war, there was an exodus of workers from the high-tech sector. That has continued, according to the Israel Innovation Authority, which reported that “not only has growth in the sector plateaued, but a concerning number of skilled professionals are choosing to leave the country entirely—creating a mounting ‘brain drain’ that threatens Israel’s competitive edge.”
Diamonds, Tourism, Boycotts
Israel’s second-largest export, diamonds, is in free fall: Rough diamond exports plunged 24% in 2024, while polished imports dropped 33%.
Tourism has collapsed, with major airlines suspending flights, and cruise lines halting stops in Israel. From a peak of 4.55 million visitors in 2019, generating $8.5 billion in revenue, the industry has shriveled to fewer than 1 million visitors and barely $2.2 billion in revenue in 2024—a 68% drop that has hurt hotels, restaurants, tour operators and guides.
The global boycott movement has added to the pressure, punishing universities, artists and others who have no influence over government policy while doing nothing to improve Palestinian lives.
Defense exports have been a rare bright spot as nations take note of Israeli battlefield technologies. But even here, cracks show: Spain canceled a $285 million order, Israeli contractors have been banned from defense expos, and talk of arms embargoes is growing.
Destruction Of The Land
The cost of destruction inside Israel is staggering. In northern Israel, approximately 92,417 acres of land were burned in the Nature and Parks Authority, 42,749 acres of agricultural land were scorched, and 370 acres of crops were destroyed. Agriculture, which is the backbone of the northern economy, sustained more than $108 million in losses. The government has pledged $4.1 billion for reconstruction so far.
While most residents have returned and rebuilding is underway, northern Israel’s full recovery hinges on accelerating government investment, restoring livelihoods and ensuring security to give displaced families the confidence to come home.
The state has allocated $5.25 billion to rehabilitate the Gaza border region over five years. Approximately $125 million was invested in agriculture over the last year. Rebuilding will take years.
Demands for Asssistance
Though it was downplayed at the time, the Iranian missile barrages damaged thousands of houses and buildings. According to Haaretz, “the Israel Tax Authority has received applications for financial assistance for nearly 33,000 damaged structures. Another 4,450 files have been opened for the loss of belongings and equipment, and another 4,119 for damaged vehicles.”
An initial estimate put the cost of damage from missile strikes at around $3 billion. The realization that many homes in Israel lack shelters will also lead to more spending to ensure there are adequate spaces for the population to survive a future assault. This also does not count the cost of the missile-defense systems.
Then there is the cost of prosecuting the war itself. Haaretz estimates that Israel has already spent more than $60 billion, with a single 12-day operation in Iran costing $6.5 billion. Keeping 10,000 reservists in the field for a month costs $120 million—and the latest call-ups have multiplied that figure several times over, while also stripping the economy of thousands of workers. Israel is paying with higher debt, higher taxes and looming cuts to social services.
Gaza Aid
Reluctantly, Israel began paying for humanitarian aid to Palestinians, adding to the total cost of the war. In June, it was revealed that the government had allocated $205 million for the Gaza Humanitarian Foundation, created to substitute for the United Nations and other aid agencies that were allowing Hamas to steal supplies. That figure has grown with the GHF’s expansion.
Harsh Reality
Even amid these crises, there are signs of resilience. The shekel remains strong, the stock market has surged, and unemployment is low. Israel boasts the highest birth rate in the OECD and a GDP per capita higher than Germany’s. But these metrics obscure a harsher reality: The average Israeli’s standard of living is declining, and the war has cast a long shadow over future growth.
Adding to the instability, an unrelated blow came from Washington, where the Trump administration slapped a 17% tariff on Israeli goods—just a day after Israel eliminated tariffs on U.S. imports. The Manufacturers Association of Israel predicts this will wipe out $2.3 billion in exports and cost as many as 26,000 jobs.
Israel’s economy has not collapsed, but it has been battered, bruised and burdened in ways that will take a generation to overcome. The question is not whether the country can survive economically—it can—but whether the cost of survival will constrain its future prosperity and erode the foundation of its strength.
