Israel's economy is suffering and economists say the solution is to end the war

Israel’s economy is suffering from its nearly 11-month long war with Hamas, as its leaders grind ahead with its offensive in Gaza that shows no signs of ending and threatens to escalate into a wider conflict.

The country’s deficit is up, credit ratings are down, the tourism industry is flailing, and state expenditures are mired in controversy.

The cost of rebuilding areas in the south and north of the country, compensating families of victims, and strengthening Israel’s defense systems has placed a massive strain on the economy.

"We are going to lose this year, in GDP, 14 billion dollars. But that's only the GDP, we are losing much more," leading Israeli economist Jacob Sheinin said.

Prime Minister Benjamin Netanyahu has tried to allay concerns by saying the damage is only temporary, but the war has hurt thousands of small businesses and compromised international trust in an economy once thought of as an entrepreneurial dynamo.

Leading economists say a cease-fire is the only way to stop the damage.

The United States, Qatar and Egypt are straining to seal a deal that would bring an end to the war and exchange scores of Israeli hostages for Palestinian prisoners, but success has proved elusive.

The war began on October 7, when Hamas militants stormed southern Israel, killing some 1,200 people and taking 250 people hostage.

More than 40,000 Palestinians have been killed in Gaza, the territory’s Health Ministry said.

Since the beginning of the war, rockets fired from Gaza and from Hezbollah militants in Lebanon has led to the evacuation of tens of thousands of people from their homes and wreaked large-scale damage.

Israel’s economy has recovered from previous shocks, like COVID-19 and past wars with Hamas.

The vibrant high-tech sector, the main engine of the economy, appears to be rebounding from a slowdown when the war broke out late last year.

But the drawn-out conflict and the threat of further escalation with Iran and its Lebanese proxy, Hezbollah, has had an especially harsh impact on small businesses, shipping, and the tourism industry.

In Jerusalem’s Old City, nearly all souvenir shops have closed.

Even Jerusalem’s iconic American Colony hotel has had to lay off workers and are mulling pay cuts, said Jeremy Berkovitz, the official representative of the owners.

"We did consider at one point closing for a few months,” said Berkovitz.

"That would mean sacking all the staff, it would have meant letting the gardens which we’ve developed over 120 years go fallow.”

In Haifa’s flea market, merchants set up their wares forlornly.

"Now, there are no tourists, not very much,” said Meir Sabag, an antiques dealer whose shop sat empty.

He said business is worse now than it was during the COVID-19 pandemic.

On a recent weekday, the formerly bustling port of Haifa, where massive container ships would stop on transnational voyages and a major hub of Israeli import-export, sat still.

With Yemen's Houthi rebel group endangering ships passing through Egypt's Suez Canal, many long-haul tankers have stopped using Israeli ports as refueling points, said a port official who spoke on the condition of anonymity because he was sharing internal information.

Sheinin said that the best way to help the economy bounce back would be to end the war.

“But,” he cautioned. “If we are stubborn and continue this war, we will not recover.”