Israel鈥檚 economy, wounded by war, is healing. Why the public remains sour.
| Tel Aviv, Israel
Kindergarten teacher Merav Weiss surveys spring-color clothing as she and her daughter walk around a newly opened mall on the outskirts of Tel Aviv. She says she hasn鈥檛 bought anything yet.
鈥淚 am more careful about my spending鈥� as everything has become 鈥渟o expensive,鈥� she says. Because of the war and the neglect of Israel鈥檚 distracted political leadership, things are 鈥渧ery difficult,鈥� she explains. 鈥淧eople are suffering.鈥�
Walking around the same open-air mall with a friend, Sharon, a real estate agent who gives only her first name, says she, too, is 鈥渘ot optimistic鈥� about the economy. Interest rates are high, and there is 鈥渟tagnation鈥� in the construction sector because of a lack of Palestinian workers since the war started.
Why We Wrote This
A story focused onAfter 18 months of war, uncertainty and contradictions are everywhere in Israel. The economy shows signs of recovery, but citizens lack confidence. One reason: The government has failed to spell out a clear vision for the future.
鈥淵oung couples can鈥檛 afford apartments, and rents are going up,鈥� she says.
After 18 months of the Israel-Hamas war, uncertainty and contradictions are everywhere. The ceasefire in Gaza has collapsed, yet efforts continue to bring the remaining hostages home and achieve a more durable truce.
Israelis work, go out, and attend concerts one day, then, wrapped in flags, tearfully line the streets to accompany slain hostages to their graves the next. The economy shows modest signs of recovery, but citizens focus on the negative.
Nadine Trajtenberg, a former deputy governor of the Bank of Israel, says the economy is not doing that badly considering the physical and mental battering the war has wrought. Booming in the years before Hamas鈥� Oct. 7, 2023, attack, the economy grew , exceeding forecasts. Unemployment is low, the high-tech sector seems to be thriving, and the shekel has weathered the storm surprisingly well.
Lack of political vision
Yet a majority of Israelis voice pessimism about the economy, according to a March 9 published by the Israel Democracy Institute. That was even before the tariffs on Israel announced by U.S. President Donald Trump, which present yet another challenge to Prime Minister Benjamin Netanyahu, under pressure for his handling of the war, alleged corruption, as well as the economy.
In the poll, 72.5% of respondents favored Mr. Netanyahu resigning from his post either now or after the war. He was meeting Monday with President Trump at the White House to discuss the tariffs and the war, both of which cast a deep shadow over the direction of the economy.
Several factors contribute to the malaise felt by Israelis about the economy: Taxes have risen to pay for the war; the Houthis鈥� Red Sea has made imports costlier; airfares have surged as airlines have canceled or curbed flights to the country; tourism has ; and many reserve duty soldiers have returned to their small to find them debilitated by their prolonged absence. Other reservists have even lost their jobs.
As salaries have remained stagnant through all this, the quality of life for Israelis has dropped, explains Ms. Trajtenberg. Not only that: The hard-right government has failed to spell out a clear vision for the economy, which could raise hopes and lead to a quicker recovery, she adds.
鈥淭he biggest problem 鈥� is that we don鈥檛 know where we鈥檙e going,鈥� she says. People are willing to put up with hardship if they know things are going to get better, but 鈥渢here鈥檚 no strong signal it will get better.鈥�
The government budget, just passed, 鈥渄oes not really give us a sense of direction,鈥� Ms. Trajtenberg says. 鈥淲e need to know what鈥檚 more important and what鈥檚 less important. And none of this is really happening.鈥�
The need for additional spending on defense in coming years, meanwhile, 鈥渨ill lead to higher taxes or a reduction in services, and probably a combination of both.鈥�
The collapse of construction
In the immediate aftermath of the war Israel鈥檚 economy froze. Some 350,000 reservists, or 20% of the nation鈥檚 workforce, were mobilized at some point. Residents were displaced from front-line communities; rocket-barraged businesses and farmlands shut down.
Overnight, Israel halted the entry of over 130,000 Palestinian workers from the West Bank and Gaza, the majority of whom were employed in construction. Israeli contractors were forced to shut down sites and scramble for labor.
Nir Yanushevsky, who managed a Tel Aviv-area construction firm with 1,000 workers, most of them Palestinians, says laborers 鈥渄isappeared overnight鈥� with the start of the war.
鈥淭he government鈥檚 efforts to bring in workers from India and other countries have been hampered by bureaucracy,鈥� he says. His firm now employs 80 workers from India and is planning to bring in 40 more from Thailand. But 鈥渢he costs of employing these new workers are double those of Palestinians,鈥� he says.
Along with the high interest rates, the situation is deterring contractors from starting new projects, exacerbating a housing shortage. According to Bank of Israel data, home prices rose 7.3%聽in 2024.
All eyes on tech
All eyes are thus turning to the nation鈥檚 tech sector, which has helped the country bounce back from previous crises.
The sector 20% of Israel鈥檚 gross domestic product, accounts for over half of the country鈥檚 annual exports, and employs 12% of Israel鈥檚 workforce. The industry helped Israel rebound from a 1.5% in 2020 鈥� amid the COVID-19 pandemic 鈥� to 9.9% in real GDP growth in 2021, S&P data shows.
At the beginning of the war, some 10% to 15% of the tech workforce was called to reserve duty. But soon after the initial shock, CEOs and employees leaped into action to make sure they kept their firms鈥� commitments.
Employees took on added work to cover for those at war; some temporarily relocated abroad to meet deadlines. CEOs pivoted between their startups and the battlefield, hastily taking off army uniforms to jump onto investor calls.
The efforts proved fruitful. In 2024, Israeli tech firms raised almost $11 billion from private investors, a 28% increase from 2023, according to (SNC), a nonprofit that supports the industry.
Some foreign investors shied away because of risk and practical difficulties, such as the inability to travel to Israel, says Avi Hasson, CEO of SNC. But others 鈥渄oubled down on Israel,鈥� compensating for those who stayed away.
On Nov. 9, 2023, Carrar, a maker of battery systems for electric cars, was scheduled to demonstrate the safety of its products to Sweden鈥檚 Volvo Group.
Yet on Oct. 7, one of Carrar鈥檚 key engineers, Tom Balestra, was hiding under his bed with his pregnant wife on Kibbutz Nir Am during the Hamas attack. Rocket debris damaged Carrar鈥檚 offices, located just two miles from the Gaza border, making the premises unsafe. Eight of the firm鈥檚 25 employees, all engineers, were called to reserve duty.
鈥淲e had to be flexible in the way we managed the team,鈥� says CEO Avinoam Rubinstain. Some employees worked from home or at a quickly organized space in Tel Aviv. Others worked under rocket fire at the company labs.
Mr. Balestra traveled with a small team to Germany to test the product 鈥� three days before his son was born 鈥� and the firm managed to present the findings to Volvo in Sweden on time in November, says Mr. Rubinstain.
The CEO, a 25-year tech veteran, says Carrar raised from investors in 2024 despite the war, but the process 鈥渢ook longer and more effort.鈥� Now, he says, things are almost normal: Conversations with customers and investors are about business and global developments, and less about war.
Focus is international
Indeed, Israeli tech is more impacted by about a global trade war and a U.S. recession than by local geopolitics, says the SNC鈥檚 Mr. Hasson.
Although the war in Gaza has been a longer and more significant event than previous crises, he adds, tech has again demonstrated its resilience.
On March 18, even as fighting resumed in Gaza, Google an agreement to acquire Wiz, a cybersecurity company founded in Tel Aviv five years ago by four Israeli military veterans. The cash deal is for $32 billion, the most for an Israeli tech firm in history.
The total value of tech mergers and acquisitions in 2024 reached almost $16 billion, a 49% increase over 2023, SNC shows.
The Bank of Israel said Monday that Israel鈥檚 economy will grow by 3.5% this year and 4.0% in 2026, lower than its previous forecast, amid the high levels of uncertainty cast by the new tariffs imposed by the U.S. and developments in the war.
Yet any further economic recovery, if and when it happens, will be too late for Mr. Yanushevsky, the contractor, who has moved his family to New Jersey, where he manages the real estate investment activities of the family business.
There is 鈥渓ittle hope for a good future in Israel,鈥� he says. 鈥淭he government is dysfunctional and unprofessional. There is no strategy.鈥�
Even though his 鈥渉eart is still in Israel,鈥� he says, his family is happy in the United States. 鈥淚t is quiet here. The only explosions you hear are fireworks.鈥�
