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Israel’s economy faces unprecedented challenges amid war with Hamas

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Israel’s economy, which has recovered from previous wars with Hamas in the past, is facing unprecedented challenges amid the ongoing conflict that erupted on Oct. 7. The war, which has killed thousands of people on both sides and displaced many more, has also disrupted the normal functioning of the country’s businesses, industries, and public services.

Israel’s economy may shrink 11% on an annualized basis in the last three months of the year, as the war with Hamas escalates. The bank’s initial projections about the economic impact of the conflict were “too optimistic”, analysts wrote in a note dated Oct. 27. They added that “gauging the impact of the war on Israel’s economy remains difficult both due to still very high uncertainty about the scale and duration of the conflict and the lack of high-frequency data at hand.”

The war has also affected Israel’s trade and tourism sectors, which are vital for its economic growth. Israel’s main stock index in Tel Aviv is down 11% in local-currency terms since Oct. 7, while the shekel has slumped to its weakest since 2012. The World Bank cautioned that record-high oil prices could be on the horizon in the event of an expansion of the ongoing Israel-Hamas war. Oil prices have already risen by more than 20% since the start of the conflict, as fears of supply disruptions and regional instability mount.

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