As the Israel-Hamas conflict marks its one-year anniversary since the initial Hamas attack on October 7, 2023, the economic consequences are increasingly dire for both Israel and Gaza. The conflict has resulted in over 40,000 Palestinian civilian deaths, predominantly among women and children, while the toll on Israeli lives remains significant, with approximately 1,200 Israelis killed [c4dcf0a2]. The direct costs of the Gaza conflict reached 100 billion shekels (around $26.3 billion) by August 2023, with projections estimating total costs could rise to 250 billion shekels (approximately $66 billion) by the end of 2025 [36f6b872].
Israel's economy has faced severe challenges, contracting by 4.1% following the October 7 attack, with further declines of 1.1% and 1.4% in early 2024 [c4dcf0a2]. The budget deficit has surged to -8.3% of GDP as of August 2024, with the debt-to-GDP ratio increasing from 62% to 67% [25b6e69d]. Over 85,000 individuals have exited the workforce, and around 250,000 people are now internally displaced due to the violence [25b6e69d].
The high-tech sector, a vital part of Israel's economy, is reportedly relocating operations due to the instability created by the ongoing war, and foreign direct investment has dropped by 29% year-on-year in 2023 [36f6b872]. The government has pledged $160 million to boost the tech sector and encourage local investment as foreign investors pull back [36f6b872].
In Gaza, the economic situation is catastrophic, with the GDP plummeting by 86% in the first quarter of 2024 compared to pre-war levels, dropping from $670 million per quarter to just $92 million [5141bb2d]. The World Bank and UN have reported that 82% of private sector establishments have been damaged or destroyed, and 84% of health facilities and schools have been affected [5141bb2d]. Agricultural assets have suffered devastating losses, with estimates indicating that 80%-96% have been destroyed [c4dcf0a2]. The construction sector has seen a 96% decline, agriculture is down 93%, and services have decreased by 77% [5141bb2d].
The United Nations reports that 80% of Gaza's population is reliant on international assistance, with 75% internally displaced due to the ongoing conflict [5141bb2d]. Only 166 trucks entered Gaza in September 2024, highlighting the severe restrictions on aid and resources [5141bb2d]. Protests in Israel have intensified, with tens of thousands demanding a ceasefire and questioning the government's handling of the situation [88f3db8d]. Prime Minister Benjamin Netanyahu has attributed the stalled negotiations for a ceasefire to Hamas, while U.S. officials, including President Biden and Secretary of State Blinken, continue to engage in discussions aimed at reaching a resolution [88f3db8d].
The International Monetary Fund (IMF) projects Middle East GDP growth at 2.6% for 2024, despite the ongoing conflict and its economic toll [c4dcf0a2]. Maritime trade routes have also faced disruptions due to Houthi attacks, contributing to fluctuations in oil prices, which currently stand at $75 per barrel [c4dcf0a2]. Experts warn that Netanyahu's aggressive stance could lead to wider conflict and further economic shocks [c4dcf0a2]. Without significant changes, Israel may face a deepening financial crisis that could threaten national security [25b6e69d].