The Effects of the War on Israel's Economy and the Required Policy Measures

This short paper discusses the economic impact of the war with Hamas in Israel, addressing the challenges posed by increased government expenses, decreased income, and the potential diversion from the country's previous high growth trajectory.
A scenario analysis predicts a decline in GDP, an increase in the deficit, and a higher debt-to-GDP ratio by 2024. The risk premium for Israel has surged, making future debt financing more expensive. There are concerns about a crisis of trust in the government, limited execution capacity, and a diminished sense of personal security among citizens. The recovery is intricately tied to achieving war objectives and restoring citizens' sense of security. Immediate actions are recommended, including enhancing government execution capabilities, forming a limited economic cabinet, and constructing a new budget for 2024 that supports heightened execution capacity and strengthened national security while promoting fiscal responsibility. The localized nature of the war necessitates responsible budgetary conduct to maintain investor confidence. Damage to the local high-tech industry is highlighted as a significant threat to economic growth. Lastly, professional economic management is deemed crucial to prevent social and economic damage, maintain public trust, and avoid potential long-term risks to Israel's sustainability.