Is Israel’s genocide economy on the brink?

Economist Shir Hever explains how the Gaza war mobilization propped up a ‘zombie economy’ that appears to function but lacks any future horizon.

People walk through Tel Aviv’s Carmel Market, partially closed following ongoing missile attacks from Iran, June 23, 2025. (Yonatan Sindel/Flash90)

Dec. 16, 2025 - Since October 2023, Israel has faced a convergence of economic shocks. Tens of thousands of residents have been displaced from border regions in the south and north as a result of hostilities with Hamas and Hezbollah, while hundreds of thousands of reservists were pulled out of the workforce for extended periods, leaving key sectors short-staffed and productivity depleted. Public services, education, and healthcare have deteriorated as state spending was diverted to the war, and almost 50,000 businesses have gone bankrupt. 

Capital flight — particularly in the high-tech sector — together with a growing reliance on foreign loans has added significant strain to the economy, with debt expected to reach 70 percent of GDP in 2025. Israel’s international standing has also weakened: Once-stable trade partners are turning away, sanctions and boycotts are expanding, and major investors are beginning to look elsewhere.

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