The IDF's offensive against Lebanon on Tuesday, October 1, following the one carried out in Gaza in the wake of the Hamas terrorist attack of October 7, 2023, is plunging the Israeli economy into uncertainty. While it is still too early to assess the consequences, the Organization for Economic Co-operation and Development (OECD) issued a warning in May: "The opening of a northern front in the current conflict would halt consumption and further disrupt economic activity, generating a slump similar to the one observed in late 2023 and considerably exacerbate budget pressures."
With each passing month, Israel's economy is approaching stagnation, if not recession, as the risks of regional conflagration intensify. Growth fell from 6.5% in 2022 to 2% in 2023, and was expected to fall to 1.1% over 2024 as a whole, according to the government's latest forecasts, released in early September. This figure is likely to be revised downward again, depending on the duration of the conflict in southern Lebanon, the scale of destruction and the number of reservists recalled to the armed forces.
The war had an almost immediate effect on the workforce. The suspension of work permits granted to Palestinians and the departure of migrant workers after October 7 caused the proportion of foreigners in the workforce to plummet from 6.7% to 3.5%, interrupting work at many construction sites – up to 80% of them in the country were at a standstill.
According to official figures, 70,000 Palestinians out of the 300,000 workers in the sector have not been replaced. At the end of September, the Ministry of Finance announced grants of up to 21,000 shekels (€5,000) for each Israeli worker joining the construction industry. Since the start of the war, it has facilitated the arrival of 20,000 foreigners, through agreements with countries such as India and Malawi. "The slowdown in the sector is fueling soaring housing prices, and therefore inflation, which is a real problem for Israel," noted Israeli economist Nadine Baudot-Trajtenberg, former deputy governor of the country's central bank.
In addition, the agricultural villages bordering Gaza have been deserted, as have the orchards in the north of the country, close to Lebanon, which has prevented harvests, making the grim situation "the biggest crisis for agriculture in the State of Israel since its creation," declared Oren Lavi, a senior official in the Ministry of Agriculture. "In a country that lives like an island, the primary mission of agriculture is to ensure food security," said Uri Dorman, secretary general of the Farmers' Federation of Israel. "But the lack of labor power is still a problem, even if the departure of the Palestinians has been partly offset by the arrival of foreigners and volunteers," as well as by the intensification of mechanization.
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