Israel has been in a state of shock since Hamas’s violent incursion, which officials say left more than 1,400 dead. It retaliated with a ground invasion of Gaza and a relentless bombardment that the enclave’s health ministry says has killed some 10,022 Palestinians.
Some 350,000 Israeli army reservists were called up — 8 per cent of the workforce — as the country mobilised for war.
Meanwhile, 126,000 civilians from the north and south of Israel have been relocated in an effort to shield them from Hamas missiles and mortar attacks by Hizbollah, the Lebanese militant movement backed by Iran.
Polls show overwhelming public support for the war. But its scale is taking Israel into uncharted territory. The most comparable event is the Gaza war of 2014, the previous time Israeli forces invaded the impoverished strip, but that lasted for 49 days and involved far fewer reservists.
There are some signs of a recovery after the initial shock of the Hamas attack: the shekel is holding up, following interventions by the Bank of Israel, and consumer demand has begun to revive, albeit slowly. On Monday, Israel’s central bank said it would provide the banking system with up to Shk10bn ($2.6bn) to help small businesses affected by the war to access low-interest loans. The programme would run until the end of January, the bank said.
Discretionary spending has also been badly hit. “People are not only worried about missiles — they’re also in a terrible mood, grieving for friends and relatives,” Victor Bahar, chief economist at Bank Hapoalim, said. “That is suppressing consumer demand.”
Evidence is already mounting of the war’s destructive impact on economic activity. A survey of Israeli businesses by the Central Bureau of Statistics found that one in three had closed or were operating at 20 per cent capacity or less since it began, while more than half had reported revenue losses of 50 per cent or more.
The results were even worse for the south, the region closest to Gaza, where two-thirds of businesses had either shut or reduced operations to a minimum.
Meanwhile, the labour ministry says that 764,000 Israelis — 18 per cent of the workforce — are not working after being called up for reserve duty, evacuated from their towns or forced by school closures to look after children at home.
But Eugene Kandel, chair of Start-Up Nation Policy Institute, a think-tank, and one of the signatories of the economists’ letter, said the government “has still not shown it has understood the gravity of the situation”.
“You need to have a laser-like focus on the war and rebuilding people’s trust in the state and its leadership and investing in Israel’s resilience,” he said. “Every ministry and its budget should potentially be on the cutting block.”