Israel’s Economy Is Not Invincible

Restaurants in Tel Aviv are full. High-tech exports remain strong. The shekel is holding its value. By some measures, Israel’s economy seems unscathed by the war in Gaza. But there is a financial strain, and the longer the war goes on, the worse it will become.

Prime Minister Benjamin Netanyahu has resisted diplomatic pressure to rapidly bring this agonizing war to an end. I wonder if what finally moves him will be economic forces, not diplomatic ones.

This past week I spoke to Naftali Bennett, who served as prime minister in 2021 and 2022, and Avi Simhon, the chief of Netanyahu’s National Economic Council. Both were optimistic that the war would end soon and Israel would come out of it strong. Bennett told me that people in the Israeli high-tech sector who recently had talked about emigrating have stepped up in creative ways to help soldiers, victims of Hamas and people displaced from their homes near the borders with Gaza and Lebanon. “The war turned people idealistic,” he said. “It’s not going to be undone.”

On the other hand, I also spoke with academic economists who were considerably more worried. “We have proved time and again that we can absorb shocks,” Manuel Trajtenberg, a professor emeritus of economics at Tel Aviv University, told me. “The big problem is, what are the prospects moving forward? If it’s an open-ended conflict with a great deal of uncertainty, that’s what would do damage.”

The longer the war goes on, the more Israeli companies will be subject to pressure such as boycotts that may not be quickly lifted when the conflict ends.

The surge in patriotism among the techies isn’t likely to last, Itzchak Raz, an economist at Hebrew University of Jerusalem, told me. “A lot of Israelis, especially young and educated ones, are looking into the future, and they don’t see a bright future,” he said. “The war has made it worse.”