A heavy price paid by the Israeli economy within two years of the Gaza war economy

Occupied Jerusalem – Two years after the outbreak of the Israeli aggression on the Gaza Strip in October 2023, economic indicators reveal the high price that Israel paid from its economy due to its war, especially from its economic growth rate, the labor market, investment, and public finances, while some strategic sectors have shown the ability to adapt.

The Israeli economy witnessed this year a severe economic shock series as a result of the escalation of the war on Gaza and the expansion of its regional influences, and official and unofficial estimates indicate that the total and indirect cost cost of the war amounted to hundreds of billions of shekels, and what was reflected in the shrinkage of basic sectors, the erosion of government revenues, and the high need for military and emergency disbursement.

In the face of this reality, the Bank of Israel reduced again the beginning of this month, its expectations for the growth of the economy for the year 2025 to only 2.5%, which is almost half of the optimistic expectations issued in April 2024, which was at 5%.

On the other hand, analysts believe that growth may be less, and ranges between 1% and 2%, in light of the continued consequences of the war on the various economic sectors, according to the Israeli newspaper Haaretz.

The Bank of Israel estimated the total cost of the war at about 330 billion shekels (100 billion dollars), which means 111 thousand shekels (33.6 thousand dollars) for each Israeli family.

The Bank of Israel warns of what it calls the influence of the economic “infection”, that is, long -term effects that may extend to years, and postpones any decisions to reduce interest to avoid the exacerbation of financial pressure on the economy.

The bank indicates that the continuation of the war after 2026 will exacerbate economic damage and slow the frequency, which makes the management of financial and monetary policies more challenging to maintain the stability of the Israeli economy.

Losses and the cost of war

Official estimates differed greatly, as the Minister of Finance in Salail Smotrich estimated the cost of the war at about 300 billion shekels (89.4 billion dollars), while the public accountant Yahaly Rottenberg spoke about 140 billion shekels (41.7 billion dollars) until the end of 2024, expected to reach 200 billion shekels (59.6 billion dollars) at the end of 2025.

According to the Institute of National Security Studies of the University of Tel Aviv, direct economic losses exceeded 60 billion dollars, with other Israeli estimates that suggest that the real number is much greater than that, as a result of the extension of the effects of war to major sectors such as real estate, employment, and industry.

The war led to a huge increase in security expenditures, which have multiplied since 2022 to 168 billion shekels (51.34 billion dollars) in 2024, with an amazing increase in the costs of military reserves from less than two billion shekels (611.29 billion dollars) in 2022 to about 32 billion shekels (9.78 billion dollars) in 2024.

Total losses and direct effects

Bank of Israel estimates the total numbers of approximately 250 and 300 billion shekels (between 76.41 billion dollars and 91.69 billion dollars) until early stages of the war, including direct military expenditures, infrastructure damage, and the loss of economic activity in the tourism, trade and industry sectors, which immediately puts an immediate pressure on Israel’s financial reserves and ability.

On the public budget level, at the end of September 2025, the Knesset approved an additional 30 billion shekels (9.17 billion dollars) to the Ministry of Defense, while the budget of 2025 amounted to about 786.7 billion shekels (240.45 billion dollars), of which 110 billion shekels (32.8 billion dollars) are for the needs of the army and military operations, while raising the roof of the deficit to 5.2% of the gross domestic product.

In the real estate market, clear indications of slowdown, and even the beginning of a real crisis emerged. The Al Arouf Institute for Real Estate Research at Tel Aviv University indicated a 24% decrease in the number of home sale deals during the second quarter of 2025 compared to the first quarter (from 26.5 thousand to 20 thousand transactions).

As for the parallel period of 2024, the decline reached 35%, and this sector is one of the basic pillars of the Israeli economy, and contributes about 6% of the gross domestic product, and provides job opportunities for tens of thousands of Israelis, foreign workers and Palestinians.

However, the war led to a shortage of approximately 150,000 workers in this sector since October 20, 2023 due to the prevention of the entry of Palestinian workers, which led to the slowdown of infrastructure and real estate projects and the decline in their related investments.

This slowdown in real estate activity left a direct impact on financial inflation and bank interest rate, and led to the erosion of the purchasing power of wages and the increase in the monthly installments of housing loans, which reduced the ability of families to buy housing.

According to the Globes newspaper, it is expected that the pace of the prices of apartments will slow down during the year 2026, not because of the low demand, but rather the result of high inflation, interest rates and liquidity decline in the market.

In terms of wages and the labor market, the Central Statistics Department data showed that the wage rate in the Israeli economy amounted to 14 thousand and 201 shekels (4340 dollars), a slight increase of 2.5% compared to 2024, which reflects a slowdown in the pace of wage growth against high prices.

The Employment Authority revealed a state of rigidity in the number of workers since the beginning of 2025, as the economy has not registered a growth commensurate with the increase in the population, and the unemployment rate reached 3% of the total workforce, while the number of unemployed reached 186.1 thousand people until the end of August 2025.

During the same month, about 4.3 thousand people were demobilized, and the number of applicants for income subsidies reached 38 thousand people, and the recruitment department witnessed a rise of 25.4% in the number of unemployment subsidies compared to August 2024, and an increase of 5% in income subsidies requests, and this is partly due to an application retroactively for temporary layoffs during the war with Iran.

The affected strategic sectors

• Technology and innovation sectorThe technology and innovation sector in Israel was subjected to great pressure as a result of the war. Foreign investments and international deals have witnessed a remarkable slowdown, which affected the ability of startups to expand their activities and finance their projects.
  The reserve forces summoned the lack of human competencies, and this hindered the progress of daily work and led to the postponement of some projects. In addition, technology exports were affected by the logistical disorders and the decrease in operational capacity, which reduced its share in the global markets temporarily.
• Energy and natural gas sector: The energy and natural gas sector also witnessed direct effects of the war. Production was stopped in some marine fields, and exports were suspended temporarily, which led to direct financial losses and negative impacts on the state budget estimated at tens of billions of dollars, according to Maariv newspaper.
  Among the most prominent examples of this is the losses of supply to Egypt and Jordan, which affected government revenues, as well as security repercussions on regional gas projects, and the continuation of operations became linked to security stability, which increased the operational and investment risks in this vital sector.
• Tourism: It witnessed a sharp collapse in the number of visitors and its revenues, and official reports stated that direct and indirect losses in the sector amounted to approximately 12 billion shekels (3.4 billion dollars), with a sharp decrease in the numbers of tourists and canceled events, which strongly affected destinations such as Eilat and occupied Jerusalem, according to the monitoring of the Kalcalest newspaper.
• The aviation sectorThe war has radically changed the map of the flight in Israel, and the activity of local airlines witnessed a remarkable increase at the expense of foreign competitors.
  The share of Israeli companies at Ben Gurion Airport has doubled from 32.3% to 61% of the total air traffic, which reflects the extent of isolation and international boycott of Israel in the aviation sector, according to The Marker.
• The flow of investments and economic isolationThe war increased the risks to investors, led to the abolition of international activities and conferences and the decrease in the movement of commercial tourism, and at the same time large investments and strategic participants (especially in cybersecurity and energy) maintained a level of activity, and the result is relative economic isolation in many sectors.
  Since the beginning of the war, the Israeli economy has witnessed the abolition and postponement of foreign investments, which means the loss of billions of dollars that were awaiting pumping into the Israeli market, according to Yedioth Ahronoth.
  The war led to the abolition or postponement of tourist contracts, international conferences, and some export arrangements, and also damaged commercial confidence in sensitive sectors, and in return, power deals and major investments emerged or negotiated later, which makes the image vehicle between immediate losses and transitional opportunities in specific sectors.
• Canceling the arms deal with Israel: Israeli military industries witnessed great shocks as a result of the war in Gaza, as several countries canceled arms contracts with Tel Aviv or temporarily stopped them, according to Kalcalist newspaper, most notably:
  – Spain canceled arms contracts worth 1.35 billion dollars, which included correction systems, a missile launcher project, an anti -tank deal, and a 9 millimeter ammunition contract.
  – They canceled or froze arms deals with Israel other countries such as Colombia, Japan, the Netherlands and Belgium, which led to a state of concern among local military industries companies, and as a result of these decisions, these companies incurred losses of hundreds of millions of dollars.
  In 2024, Israel has achieved $ 14.8 billion weapons sales, almost half of which is directed to European markets, but the continued economic and political isolation at the international level may reflect negatively on the volume of defense exports in the coming years.
  Analysts expect that if the current situation continues, a clear decrease in defense exports will begin by 2026, with a painful blow to these exports in 2027, which reflects the size of the long -term impact of the war on the Israeli defense sector.