Israel's war in the Gaza Strip will cost as much as 200 billion shekels ($51 billion), the Calcalist financial newspaper reported on Sunday, citing preliminary Finance Ministry figures.
The daily said the estimate, equal to 10% of gross domestic product, was premised on the war lasting between eight to 12 months; on it being limited to Gaza, without full participation by Lebanon's Hezbollah, Iran, or Yemen; and on some 350,000 Israelis drafted as military reservists returning to work soon.
Calcalist said half of the cost would be in defense expenses that amount to some 1 billion shekels a day. Another 40-60 billion shekels would come from a loss of revenue, 17-20 billion for compensation for businesses, and 10-20 billion shekels for rehabilitation.
Finance Minister Bezalel Smotrich has previously said Israel's government was preparing an economic aid package for those impacted by Palestinian attacks that will be "bigger and broader" than during the COVID-19 pandemic.
On Thursday, Prime Minister Benjamin Netanyahu said the state was committed to helping everyone affected.
"My directive is clear: Open the taps and channel funds to whoever needs them," he said without giving figures. "Just like we did during COVID. In the past decade, we have built here a very strong economy, and even if the war exacts economic prices from us, as it is doing, we will pay them without hesitation."
In the wake of the war, S&P cut its outlook for Israel's rating to "negative", while Moody's and Fitch put Israel's ratings on review for possible downgrade.
The financial toll is already severe. Israeli stocks are the world’s worst performers since fighting erupted. The main index in Tel Aviv is down 15% in dollar terms, equivalent to almost $25 billion, according to Bloomberg.
The shekel has slumped to its weakest level since 2012 — despite the central bank announcing an unprecedented $45 billion package to defend it — and is heading for its worst yearly performance this century. The cost of hedging against further losses has soared.
Spending by households has collapsed, dealing a major shock to the consumer sector that accounts for about half of gross domestic product.
Private consumption fell by nearly a third in the days after the war broke out, relative to an average week in 2023, according to the Shva payments-system clearinghouse. Expenditure on items such as leisure and entertainment plunged as much as 70%.
By one measure, the decline in credit-card purchases was more dire than what Israel experienced at the height of the pandemic in 2020, according to Tel Aviv-based Bank Leumi.
"Entire industries and their offshoots cannot work," said Roee Cohen, head of a federation of small businesses. "Most employers have already decided to place staff on unpaid leave, affecting hundreds of thousands of workers."
Israel’s central bank downgraded its outlook for the economy on Oct. 23, but still forecasts growth in excess of 2% this year and next — assuming the conflict is contained.
Even as some construction sites reopen, many workers are missing. The industry is heavily reliant on 80,000 Palestinians living in the West Bank, an area that’s been under a security lockdown since mid-September and where unrest has grown since Israel’s airstrikes and near-total blockade on Gaza began.
A halt in construction and real estate, which contribute 6% to Israel’s tax revenues, will stunt government income and could spark a renewed price surge in a housing market that’s been among the most expensive in Europe and the Middle East in recent years, according to Bloomberg.
About 15% of Israel’s tech workforce has been called up for reserve duty, estimates Avi Hasson, chief executive officer of Startup Nation Central, a non-profit group that tracks the industry. Those numbers are even higher at startups, which tend to employ younger workers, he said.
Lior Wayn, CEO of Mica, an artificial intelligence firm specializing in mammography analysis, said he’s trying to keep operations as normal as possible after several employees were affected by the attacks.
Among 500 high-tech companies surveyed last week, nearly half reported a cancellation or delay of an investment agreement. Among the respondents that include locally-owned and multinational businesses, over 70% said significant projects are being postponed or scrapped.
Even as companies say they are learning to adapt, the plight of many suggests the crisis will leave long-lasting scars across Israel’s economy.