Over the past few weeks, many companies have published their earnings reports for the third quarter (Q3) of 2023, illustrating performance from July until September. Many of these reports didn’t paint such an uplifting economic picture, as the hi-tech industry has been facing considerable difficulties since the beginning of the year due to the government’s insistence on pushing forward their hasty and controversial judicial reform – a move which thousands of economists, experts, and executives throughout Israel and around the world had advised against from the outset.
Typically, such reports might be used as indicators to project future movement in the economy – but in this case, 2023’s Q3 reports can do no such thing, because of the October 7 Hamas massacre.
Not only was this attack devastating on a national emotional level, it has also undoubtedly taken a toll on the nation’s economy – though there has yet been little indication of just how badly the economy’s been harmed.
What we know is that over 360,000 reservists have been called to active duty by the IDF since October 7, which has left a gaping hole in the country’s available workforce. Additionally, hundreds of companies have been directly affected by the ongoing conflict between Hamas and the IDF, and have been either temporarily shut down or relocated.
Here's what to expect from Israel's economy
As a result, we are left in an unsettling position, watching as third quarter news rolls in reflecting results from what now feels like a completely different reality, and knowing all the while that we are about to experience a harrowing economic period. And what’s worse we have absolutely no idea just how bad it’s going to get.
“The major thing is that we just don’t have enough information about what’s happening,” said Yossi Spiegel, an economist at Tel Aviv University and president of the Israeli Economic Association
Spiegel elaborated, noting that different indices offer varied predictions about the overall damage done to Israel’s economy, but the widespread consensus is that the economy has been significantly affected. The construction industry has halted due to a dependence on Palestinian workers without permits, and the hi-tech sector is operating at reduced capacity. Many families are working part-time, and schools and universities have been disrupted.
“Nobody is managing to function,” he said.
Speaking from personal experience, Spiegel noted that national uncertainty, both economic and otherwise, hasn’t been observed at this scale in Israel for decades. “The only comparable situation I can recall is the Yom Kippur War. Maybe the first Lebanon war. But all the other major operations that we’ve had were – of course, they were always unpleasant, but not nearly as much as now. Now, you walk around and everyone looks depressed.”
Spiegel emphasized that the prevailing sense of depression has a definite impact on productivity and consumer behavior. “People aren’t in the mood to think about these things now,” he added.
The uncertainty about when the conflict will end adds to the challenges. “There is just no clear ending point in sight. Because it’s quite likely that the hostages will remain in Hamas’s hands for years to come. For Hamas, basically, the hostages are like insurance. And I just don’t see a reason why they would give up this insurance,” he explained.
He suggested that a long-term IDF presence in Gaza is likely, which would lead to a situation reminiscent of the US conflicts in Vietnam or Afghanistan. The indefinite nature of the conflict raises concerns about returning to normalcy.
“There is no clear ending to this nightmare, and I think people understand that it’s not like ‘we’re suffering now, but soon it’s going to end and then we’re back to normal,’” he said. “I’m not sure that we’re going to get back to normal. Nobody knows.”