Israeli Economy Faces Unprecedented Challenges Amid Ongoing War
As the conflict in Gaza escalates, Israeli Finance Minister Bezalel Smotrich has unveiled plans for the 2025 budget that aim to balance public spending cuts with increased funding for the war effort. The projected costs of the war are staggering, estimated between 200 and 250 billion shekels ($54 to $68 billion), raising concerns about the long-term economic impact on the nation. Experts warn that the ongoing conflict is having a profound effect on the Israeli economy, likening it to a 'Second War of Independence'.
Economic Analysts Warn of Potential Recession
Economic experts, including Alon Eisenberg from the Hebrew University, indicate that the war's impact is akin to historical conflicts, with no end in sight. The anticipated budget deficit for 2025 is projected at 4% of GDP, down from 6.6% for 2024. However, with inflation currently at 3.6%, the economic outlook remains grim. Chen Herzog, chief economist at BDO, emphasizes the need for a budget that addresses not only direct war costs but also the indirect costs affecting investment and growth. The potential for recession looms as GDP per capita continues to shrink amidst rising military expenditures.
Calls for Economic Reforms and Military Contributions
Herzog also highlights the moral and economic implications of military service exemptions in Israel. He advocates for expanding military service to include all demographic groups, suggesting that such reforms could boost the economy by approximately NIS 15 billion ($4 billion) annually. The ongoing conflict has intensified the need for national resilience, which he argues must encompass both military and economic strength. In a weak economy, Israel's national security is also at risk, necessitating a reevaluation of budget priorities to ensure sustainable growth.
