+972 Magazine reports:

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.

An annual poverty report published Dec. 8 by the Israeli NGO Latet underscores the depth of the social crisis. Household expenses have risen dramatically since the war, nearly 27 percent of families and over one-third of children now experience “food insecurity,” and about a quarter of aid recipients are “new poor” pushed into hardship over the past two years.

Yet, at the same time, Israel’s economy has also displayed signs of resilience. The shekel has appreciated nearly 20 percent against the U.S. dollar since the start of the war, and the Tel Aviv Stock Exchange has reached record highs, buoyed in part by wartime spending and central-bank intervention.

To make sense of these seemingly conflicting signals — surging markets alongside deepening social and economic turmoil — it is necessary to look beyond traditional indicators. Israeli economic researcher and BDS activist Shir Hever argues that Israel is now operating in what he calls a “zombie economy,” one kept moving through massive military expenditure, foreign credit, and political denial.

For over two decades, Hever has examined the ties between the Israeli economy, militarism, and the occupation. In an interview with +972 Magazine, he explains why Israel’s economic crisis cannot be measured simply in terms of GDP or inflation, and why the pillars that once sustained its growth — foreign investment, technological innovation, and global integration — are beginning to erode. He also discusses the illusion of a sustainable wartime economy, the social and economic toll of prolonged mass mobilization, and how Israel’s growing isolation in global markets may signal the start of a long-term decline. [Continue reading…]