Israel's economy nears collapse under weight of Gaza war

The call-up of approximately 300,000 reservists to the Gaza and Lebanon fronts has crippled key sectors like construction, technology, and services. This exodus from the workforce has driven up labor costs and ruptured supply chains, leading to a wave of bankruptcies. Palestinian economist Abdurrahman Migdad, speaking to Turkish newspaper Yeni Şafak, stated, "In an environment where thousands have already left the country, the withdrawal of over 300,000 reservists from the market has led to a severe contraction in the labor force." He emphasized that without unlimited U.S. and European financial support, the Israeli economy would have collapsed under the weight of international boycotts alone.

Record Deficit and Investment Flight

The war has blown a massive hole in Israel's finances. The national budget deficit has hit record levels, fueled by enormous spending on the war industry, weapons production, and procurement. Concurrently, foreign direct investment has plummeted as global companies grow wary. Reports indicate that some firms now insist on holding and deleting online meeting records with Israeli entities to avoid public backlash, highlighting the severe reputational damage.

A Deepening Demographic Crisis

The economic turmoil is compounded by a significant demographic shift. Nearly half a million Israelis are reported to have left occupied territories, with northern and southern border areas largely emptied. Migdad identified this as a major crisis, noting that the long-term sense of security and stability has been critically eroded. The departure of tech entrepreneurs and skilled workers further weakens an economy heavily dependent on the high-tech sector.

Structural Weaknesses Exposed

Experts argue the war has acted as a catalyst, exposing pre-existing structural flaws in Israel's economic model. Infrastructure across private and public sectors, including technology, tourism, and construction, has severely weakened. The Israeli shekel has faced significant devaluation pressure, only partially stabilized by external support. The overall picture, according to analysts, points to a near-total paralysis in the economy of the occupying state.