Israel-Hamas war: the Jewish state deploys its “whatever it costs”

“We will win the military war, but also the economic war,” Benjamin Netanyahu promised, a few days after the Hamas attacks. My instructions are clear: open the taps, give money to everyone who needs it.”

According to initial estimates, the Israeli Finance Ministry puts the cost of the war at at least $51 billion (NIS 200 billion), or 10 percent of GDP. An “optimistic” scenario, which is based on a conflict which would not exceed twelve months, limited to Gaza, without the participation of Lebanese Hezbollah, Iran or Yemen and on the rapid return of reservist soldiers to work. Defense and security absorb half of the spending, $25 billion, with compensation of $14 billion in aid from the Americans for the acquisition of “made in USA” weapons.

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The other half of the bill includes state revenue losses - tax revenues fell by 15% in October - and compensation for victims of October 7 as well as displaced people. Tel Aviv must manage an internal refugee crisis, with 120,000 people evacuated to hotels, sometimes as far as Jerusalem. “Between 30,000 and 40,000 residents are thus separated from their employer,” estimates Dan Catarivas, president of the binational chambers of commerce. For the first time, Israel is facing this serious labor problem, which was not as critical in previous conflicts. Some 350,000 reservists (one active in fifteen), mostly young people, are mobilized in the army.

Added to this is the lack of Palestinian workers, 150,000 of them regularly came to work in Hebrew territory. The tech sector, essential to the Israeli economy (18% of GDP), stripped of 15% to 20% of its staff, survives thanks to teleworking. “In recent days, we have seen mobilized soldiers, owners of high-tech companies, working on their computers during breaks,” testifies the employer representative.

Tourism, for its part, unsurprisingly, collapsed by 80% in October. But its impact on overall activity should be limited since it only represents between 2% and 3% of GDP. The drop in revenue will also not have a significant effect on the country's current account.

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In order to enable the continuity of business activity, the State has put in place payment deferrals, support funds and other aid tools intended for the self-employed and small businesses penalized by the fall in consumption. interior.

For comparison, Covid-19 cost $39 billion over two years. In the aftermath of the epidemic, all sectors have resumed at full speed: employment, consumption, investment, industry. But, according to the Ministry of Finance, unlike this period and that which followed the Lebanese war, the recovery will be slower and “will not find the same trend” as before the war.

Especially since the war took place in a context where the economy was already shaken by demonstrations against the reform of the judicial system. The protest movement weighed on the business climate, capital flight and FDI, which dried up.

To finance part of the costs, Israel must borrow. A majority of the debt, denominated in shekels, is borrowed on local financial markets, but financing conditions remain difficult, with interest rates around 5%. Following the war, the rating agency S

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“There is a supply shock which is transforming into a demand crisis, interest rates are high, and the risk for the economy is significant,” summarizes the Treasury. S