Economic Impact of the Gaza War

Israel’s wartime economy combined continued aggregate growth with reduced civilian productive capacity: real GDP grew 0.9% in 2024, but real GDP per capita fell 0.4% and business output declined 0.8%.[2] Business output stood 2.3% below its prewar level, with the difference between overall GDP growth and business performance reflecting, among other factors, reserve mobilization and an increased share of business production directed toward defense.[2] The economic burden therefore extended beyond military expenditure to labor shortages, delayed investment, weaker exports, and diminished public saving.[2]

The Palestinian economic effects differed sharply by location: Gaza suffered the destruction of commercial, banking, and housing infrastructure, while the West Bank — known by its original, indigenous Jewish name of Judea and Samaria — experienced a downturn associated with security restrictions, reduced access to employment in Israel, and weaker household incomes.[3] West Bank GDP was reported at $12 billion in 2025, compared with $13.3 billion in 2023.[3] Gaza’s commercial exports ceased on October 7, 2023, and its statistical agency could not conduct labor-force surveys there during the ongoing conflict.[3]

The principal financial measures capture different parts of the burden: government spending records budgetary outlays, lost tax receipts measure foregone revenue, and output-gap estimates measure production that might otherwise have occurred.[4] A report covering the period through the end of 2025 separately identified NIS 231 billion in direct government war-related expenditure, approximately NIS 40 billion in lost tax revenue, and NIS 177 billion in foregone economic output.[4]

The initial estimate of Israel’s fourth-quarter 2023 GDP showed an annualized contraction of 19.4%, accompanied by reported falls of 26.9% in private spending, 18.3% in exports, and 67.8% in fixed-asset investment, especially residential construction.[5] Government spending, largely reflecting war expenses, rose 88.1% in that release.[5] For 2023 as a whole, the same initial assessment recorded 2% GDP growth and a 0.1% decline in GDP per capita.[5]

Early cost forecasts reflected expectations about the war’s duration and geographic extent.[1] On November 2, 2023, fighting costs encompassing direct and indirect security and civilian effects were estimated at approximately NIS 1 billion daily; total costs including reconstruction of western Negev communities were put at NIS 150–200 billion, approximately 10% of GDP.[1] That calculation assumed a war against Hamas on one front rather than expansion into a regional conflict.[1] A separate November 2023 forecast placed government war expenses at NIS 163 billion and the broader budgetary cost, including lost income, at NIS 198 billion, also approximately 10% of GDP.[6] Its projected debt-to-GDP ratios were 63% for 2023 and 66% for 2024.[6]

Disruption extended immediately to civilian employment.[7] An early estimate counted 764,000 Israeli employees, or 18% of the workforce, as absent from their regular jobs because of the war.[7] Overlapping affected groups included approximately 300,000 reservists, 127,000 evacuated residents unable to work, 183,000 parents of children under ten who reduced or stopped working, and 319,000 workers in affected industries such as tourism, entertainment, retail, and construction.[7] In early November 2023, worker absences were estimated to be costing the economy approximately $600 million per week.[8]

An early Palestinian assessment estimated a 4% economic contraction during the first month of fighting and more than 400,000 additional people pushed into poverty.[9] Estimated employment losses reached 182,000 jobs in Gaza, or 61% of employment, and 208,000 in the West Bank, or 24%, by the one-month mark.[9] Conditional projections anticipated an 8.4% GDP decline, equivalent to $1.7 billion, if fighting continued into a second month, and a 12% decline, or $2.5 billion, if it continued into a third.[9] The three-month scenario also projected more than 660,000 people being pushed into poverty.[9]

By mid-November 2023, an early damage assessment estimated that approximately 60% of Gaza’s information and communications infrastructure and health and education facilities had been damaged or destroyed, while 70% of commerce-related infrastructure had been crippled or ruined.[10] Its forecasts of Palestinian economic contraction—3.7% in 2023 and 6% in 2024—were made on the assumption that the conflict’s severity would decrease.[10]

Investment was the Israeli GDP component most affected during 2024, particularly in construction, where labor shortages reduced activity and delayed project completions.[2] Reduced investment also threatened medium-term labor productivity and potential output by slowing the accumulation of capital.[2] Exports declined amid labor constraints, difficulties concluding transactions during wartime, a Turkish boycott, and weaker global demand for some products in which Israel specialized.[2]

An initial statistical release placed Israel’s 2024 growth at 1%, with GDP per capita down 0.3% and business output down 0.6%.[11] Fixed-asset investment fell 5.9%, exports fell 5.6%, private consumption rose 3.9%, and public consumption rose 13.7%.[11] Defense spending increased 43.3%, compared with a 4.2% increase in civilian spending.[11] Construction-sector GDP fell 13%, residential construction investment declined 17.5% after an 8% fall the previous year, and information and communications GDP fell 4.3%.[11]

A separate account of the same year’s trade statistics recorded industrial exports down 3.9% and tourism exports down 67.4%.[12] It reported a 36.8% fall in high-tech exports within its export breakdown, while exports excluding diamonds and high technology fell 4.6%.[12] Investment in information and communications technology equipment rose 20.1%, largely because of increased purchases of security equipment.[12] Another account placed 2024 GDP growth alongside growth of 1.8% in 2023 and 6.3% in 2022, illustrating the marked slowdown from the earlier period.[13]

Forecasts changed as the fighting continued.[14][15] An early 2024 outlook anticipated growth of 2% that year and 5% in 2025.[14] By August 2024, a continued-fighting scenario projected approximately 1% growth in both 2024 and 2025, below Israel’s roughly 2% population growth rate and therefore implying declining GDP per capita.[15] A later investment-climate assessment recorded 2024 growth at 1%, compared with prewar expectations of 4–5%, and average forecasts of approximately 3% for 2025.[16]

A September 2025 trend comparison placed Israeli output approximately 4%, or NIS 80 billion, below the trajectory derived from 2012–2019.[17] That assessment recorded per-capita GDP declines of 1.2% in 2023 and 0.4% in 2024, returning the measure to its 2022 level.[17] A later account covering the war years placed the cumulative gap between actual GDP and trend above 8%, equivalent to NIS 177 billion.[18]

Recovery figures subsequently indicated renewed growth: one 2026 investment-climate assessment reported 2.9% growth in 2025, while a separate statistical account reported 3.1% growth and a 1.7% rise in GDP per capita to approximately $56,460.[19][20] The latter described a return to modest per-capita growth after two years of decline.[20]

Reduced labor supply was a major constraint on Israeli business output in 2024.[2] The estimated supply effect of prohibiting Palestinian workers’ entry was approximately 3.4 percentage points, while reserve mobilization accounted for approximately 1.5 points, producing a combined estimated impact of 4.9 percentage points.[2] Evacuated civilians, reservists’ families, and temporary workplace and factory closures, especially in the north, added to the disruption.[2] Business-sector labor input remained 5% below its prewar level, reflecting fewer non-Israeli workers, mobilization, and a moderate decline in hours per employee.[2]

Before October 7, approximately 150,000 Palestinians from the West Bank and Gaza worked in Israel; a subsequent account reported permits restricted to around 10,000 West Bank workers.[14] Construction and agriculture experienced shortages, and efforts to recruit workers from third countries had not replaced the Palestinian workforce at the time of that assessment.[14] A later account placed permits for critical fields at approximately 8,000–10,000 and recorded approximately 183,000 legal foreign workers from 21 countries in Israel in September 2025.[19]

Construction faced an immediate shortfall of approximately 100,000 workers after Palestinian entry was halted.[21] Including a pre-existing shortage, the industry’s reported deficit reached approximately 140,000 workers; nearly half of building sites were shut, while operating sites worked at approximately 30% of normal output.[21] Estimates presented to a parliamentary committee placed lost industry production at NIS 2.4 billion weekly and warned that continued disruption could cost up to 3% of annual national GDP.[21]

Reserve service affected employers through replacement costs, additional mobilization expenses, and productivity losses from extended absences.[22] A 2024 estimate put the economic cost of a reservist at approximately NIS 48,000 per month.[22] A separate labor-supply estimate placed the annual cost of not drafting ultra-Orthodox men at approximately NIS 10 billion, or 0.6% of GDP.[22] In 2025, an average of approximately 30,000 Israelis were serving in the reserves at any given time, and a reported 3.6% reduction in labor supply was associated principally with lower participation and the absence of reservists and their spouses, followed by missing foreign workers and negative migration.[18]

Overall unemployment nevertheless remained around 3% in a September 2025 assessment, partly associated with extensive reserve mobilization.[17] Unemployment began rising slightly from February 2025 as the number of serving reservists declined, while tourism and communities near the Gaza and Lebanon borders remained directly affected.[17] Worker shortages and tight labor-market conditions also contributed to business-sector wage increases and upward pressure on inflation.[18]

Tourism suffered from reduced demand and repeated airline suspensions, with nearly all foreign airlines suspending flights at some point and several remaining absent for months.[8] Airlines also raised concerns about compensation requirements for short-notice cancellations during wartime.[8] In his September 2024 assessment, David Brodet described additional disruption from mobilized drivers, the departure of approximately 15,000 foreign workers, and agricultural labor shortages near Gaza and in the north.[23] He also reported that the Tamar gas field’s month-long initial shutdown caused estimated damage of approximately NIS 800 million per month before energy supply stabilized.[23]

Recorded war expenditure through December 2024 totaled NIS 124.7 billion in the budget-execution account: NIS 24.9 billion in 2023 and NIS 99.9 billion in 2024.[24] The account separately listed NIS 102.2 billion in defense expenditure, including NIS 99.1 billion in direct military expenses, and NIS 22.6 billion in civilian expenses.[24] It also recorded NIS 18.5 billion from the Compensation Fund, including NIS 1.831 billion for direct damage and NIS 16.7 billion for indirect damage.[24]

A broader conflict-associated expenditure account placed spending through the end of 2024 at approximately NIS 142 billion, including approximately NIS 95 billion in direct military expenditure and NIS 18.5 billion from the Compensation Fund.[25] It recorded approximately NIS 37 billion in reserve-service benefits paid during 2024 and cited a September 2024 forecast of approximately NIS 250 billion in war expenses over 2023–2025.[25] The later reported direct government expenditure total through the end of 2025 was NIS 231 billion: NIS 166 billion for defense, NIS 27 billion in compensation, and NIS 38 billion in other civilian expenses.[4]

The government budget deficit reached 6.8% of GDP in 2024, while the broad government deficit was 9.4%.[2] War costs increased by approximately NIS 106 billion during the year, and public consumption excluding defense imports rose 13.5%.[2] Large expenditures contributed to sharply reduced public saving.[2] Debt raised during 2024 totaled NIS 278 billion, compared with NIS 265 billion in 2020, while debt relative to GDP increased from 60% in 2022 to 69% in 2024.[22]

The government-approved 2025 budget proposal of November 2024 totaled NIS 607 billion, NIS 100 billion above the original prewar 2024 budget.[26] Defense allocations in the proposal rose from NIS 65 billion in that earlier budget to NIS 117 billion.[26] The proposal also identified NIS 15 billion for a five-year northern rehabilitation and development plan and NIS 5 billion for the Tkuma program serving western Negev communities, with spending reductions and tax increases intended to finance additional needs.[26] The subsequently approved 2025 deficit plan was 4.9% of GDP, with possible further increases following additional defense decisions.[22]

First-half 2025 tax receipts increased approximately 12% year over year to NIS 259.6 billion, primarily because VAT rose from 17% to 18% and retained profits were taxed, rather than because economic activity increased.[17] War-related spending also contributed to credit downgrades during 2024, although Israeli debt remained investment grade.[16]

Brodet’s September 2024 commentary estimated direct military and civilian expenses through the end of 2024 at NIS 180 billion, excluding American aid, and forecast a deficit near 8% of GDP.[23] His broader accounting separately listed $45 billion in ongoing defense and civilian spending beyond special American aid, $20 billion in physical rehabilitation, $15 billion in military replenishment, and $15 billion in rehabilitation and family compensation, totaling approximately $95 billion.[23] He separately estimated lost GDP at approximately $17 billion.[23]

A SAPIR Journal essay reported direct Gaza and Lebanon war costs of NIS 141.6 billion through the end of 2024, divided approximately 80% military and 20% civilian compensation, excluding indirect costs.[27] Another SAPIR essay cited an estimated total through 2025 of approximately $68 billion, presenting this as an $84 million daily burden on taxpayers.[28] An earlier conflict brief had cited a pre-September 2024 escalation estimate of $67 billion through 2025 and a reported 4.1% contraction in Israeli GDP since October 7.[29]

Business openings failed to offset closures in both 2023 and 2024.[17] Annual figures recorded 57,000 closures and 38,000 openings in 2023, followed by 59,000 closures and 37,400 openings in 2024.[17] The resulting two-year decline of 40,600 businesses contrasted with a typical annual pattern of approximately 43,000 closures and 47,000 openings.[17] A separate late-2024 account counted approximately 59,000 closures and 36,000 openings since the war began, while noting that government support had limited damage.[26]

Financial markets and parts of the technology sector demonstrated resilience alongside these losses.[17][19] A September 2025 assessment recorded the Tel Aviv 125 index approximately 60% above its level at the war’s outset and the shekel approximately 15% stronger against the dollar than in October 2023.[17] Large listed firms’ international operations meant stock-market gains did not necessarily reflect conditions across the domestic economy, while growing security exports formed part of a trend predating the war.[17] High technology remained a growth engine, accounting for approximately 12% of employment, 20% of GDP, and 56% of exports in a later assessment.[19]

The SAPIR essay on economic growth reported a stock-market rise exceeding 80% since the war began and approximately $12 billion raised by Israeli high-tech companies in 2024, 31% above 2023.[27] A January 2025 Tikvah Ideas commentary highlighted stock-market growth exceeding 30% during 2024, outperforming the NASDAQ, S&P, and FTSE 100 despite prolonged workforce absences.[30] Brodet’s earlier account described a different phase: an initial depreciation toward four shekels per dollar, a planned foreign-exchange intervention capacity of $30 billion, and approximately $8 billion sold in October 2023 to help stabilize the currency.[23] He also described the risk premium rising from approximately 50 to 120 points.[23]

For Israeli communities near Gaza, a five-year rehabilitation allocation totaled NIS 17.5 billion, covering housing, education, welfare, agriculture, and community resilience.[31] Listed components included NIS 410 million for agricultural renewal, NIS 500 million for education and resilience programs, and NIS 61 million for trauma and bereavement programs.[31] Five communities remained in temporary housing while their kibbutzim were rebuilt.[31] Northern communities affected by the wider conflict experienced agricultural losses exceeding $108 million, including damage to orchards, vineyards, and fields, with unemployment reaching 50% in some localities and recovery remaining uneven.[31]

Palestinian GDP in the first quarter of 2024 was reported 35% below the corresponding quarter a year earlier, with declines of 25% in the West Bank and 86% in Gaza.[32] Manufacturing fell 29% and 95%, respectively, while construction fell 42% and 99%.[32] The downturn followed a fourth-quarter 2023 contraction reported at 33% across the Palestinian territories, including 22% in the West Bank and 80% in Gaza.[33]

Lost earnings from jobs in Israel, dwindling trade, movement restrictions, and salary reductions weakened West Bank consumption.[33] Consumption had normally amounted to approximately 110% of GDP, partly reflecting substantial spending by Arab Israeli shoppers.[33] By 2024, Palestinian GDP was reported at $10.6 billion, down 28% from the previous year.[34] Combined unemployment in the West Bank and Gaza reached 51.2% in the third quarter of 2024, compared with 24.1% in the corresponding quarter of 2023.[34]

In Gaza, almost all economic activity came to a standstill, with commercial exports halted and commercial, banking, and housing infrastructure destroyed.[34] A March 2025 assessment estimated that approximately 90% of local industry had ceased operating and approximately 80% of the employable population was jobless.[35] Economic activity was described as largely confined to limited humanitarian trade through Egypt.[35] A later account gave Gaza’s latest available unemployment estimate as 69% for 2024 and recorded its GDP at $486 million in 2025.[3]

Employment connections with Israel also remained substantially reduced.[3] One account placed prewar West Bank employment in Israel and settlements at approximately 178,000, compared with an estimated 51,000 permit-holding workers in the fourth quarter of 2025.[3] Palestinian public finances deteriorated alongside household incomes: actual clearance-revenue receipts fell from approximately NIS 11–12 billion annually through 2023 to NIS 4.4 billion in 2024 and NIS 2 billion in 2025.[36] Foreign aid increased to approximately NIS 3 billion in 2024 and NIS 3.2 billion in 2025, helping sustain partial salary payments and basic services.[36] Private investment, commerce, construction, and services also weakened.[36]

A damage assessment current to March 2025 placed destruction in Gaza’s housing sector at approximately 70% by the end of December 2024, listing 170,000 completely destroyed housing units and 80,000 partially damaged residential buildings.[35] Damage to infrastructure, roads, and other assets was valued in the tens of billions of dollars.[35] A separate 2024 conflict brief reported damage or destruction affecting more than 60% of residential buildings and included a reconstruction estimate exceeding $80 billion when long-term labor-market effects of death, injury, and trauma were considered.[29]

A February 2025 JCFA commentary relayed estimates that 69% of buildings and 92% of housing units had been damaged or destroyed.[37] It also cited estimates of 21 years and more than $1 billion for rubble removal, alongside an earlier estimate of 14 years to clear unexploded ordnance.[37] A later reconstruction-plan account reported approximately 282,000 damaged or destroyed homes and apartments and damage to more than 70% of water and sanitation infrastructure.[38]

An interim recovery assessment following approximately fifteen months of conflict estimated needs of $53.2 billion over ten years for Gaza and the West Bank, including $20 billion during the first three years.[39] An Arab-backed proposal adopted on March 4, 2025, likewise placed total needs at $53.2 billion, estimating $29.9 billion in material losses and $19.1 billion in economic and social losses.[40] Its sector estimates included $16.3 billion for housing, $8.1 billion for trade and industry, $7.6 billion for health, and $4.1 billion for education.[40]

That proposal envisaged a six-month, $3 billion early-recovery phase followed by a five-year, $50 billion reconstruction phase.[40] Targets included temporary housing for 1.2 million people, renovation of 60,000 partially damaged homes, permanent housing, restored infrastructure and agricultural land, and industrial and port development.[40] It projected 500,000 job opportunities.[40] A separate Palestinian Authority plan called for $67 billion over five years, beginning with $3.5 billion for immediate needs and critical infrastructure and proceeding through a three-year, $30 billion phase before final reconstruction.[38]

By September 2025, a revised reconstruction estimate stood at $70 billion, compared with approximately $53 billion in February.[41] The associated physical estimate was approximately 55 million tons of damage and rubble, with $20 billion needed during the next three years and remaining work potentially extending over decades.[41]

A February 2026 account described localized economic activity supported by humanitarian aid, small street businesses, and limited cash flows, but no start to large-scale reconstruction.[42] Work centered on basic repairs, road access, and rubble recycling; thousands reportedly extracted iron and concrete for approximately NIS 30 daily.[42] Cash shortages generated conversion charges of 15–30% for turning digital balances into currency.[42] A December survey found 95% of business owners accepting cash and 80% also accepting electronic wallets, while some markets experienced price declines of approximately 11.5% over the preceding month as humanitarian supplies increased.[42]

Higher defense spending, rehabilitation of conflict areas, care for war casualties, potentially persistent risk premiums, and a lower international credit rating were identified as medium-term pressures on Israel’s growth potential.[2] Restoring the debt-to-GDP ratio consequently became a significant economic challenge.[2] High-tech employment remained stable during 2024 despite slower sector growth, but labor constraints and weaker investment threatened future productive capacity.[2]

The August 2024 continued-fighting scenario projected deficits of approximately 8% of GDP in 2024 and 6.5% in 2025, with debt ratios of approximately 70% and 74%, respectively.[15] A separate hypothetical month of high-intensity fighting in northern Israel produced much more severe projections: a 2024 contraction of up to 10% with substantial infrastructure damage, or approximately 2% if threats were intercepted and damage minimized, alongside a deficit near 15% and debt of 80–85% of GDP.[15]

Gaza’s reconstruction outlook also depended on future funding and governing arrangements.[35] A hypothetical Israeli military occupation was estimated to cost approximately NIS 25 billion annually, with roughly NIS 20 billion assigned to military operations and associated expenses and NIS 5–10 billion to civil administration and basic services.[35] These scenarios and reconstruction programs represented possible future commitments rather than completed expenditures or achieved recovery.[35][40]

Many aggregate Israeli figures encompass the combined economic effects of fighting involving Gaza, Lebanon, and Iran rather than identifying a Gaza-only effect.[19] Budgetary expenditure, compensation payments, lost revenue, and foregone GDP also measure different economic consequences and cannot be treated as interchangeable totals.[4] A September 2024 annual deficit measure of 8.5%, for example, covers a different reporting point from the final 2024 government deficit of 6.8%.[26][2]

Gaza damage and employment estimates rest on changing assessments and restricted statistical access.[35][3] Some housing figures originated with a ministry operating under the Hamas government, while ongoing conflict prevented regular labor-force surveying.[35][3] Reconstruction totals likewise depend on assessment dates, geographic coverage, and proposed recovery programs rather than a single final audited accounting.[39][41]