In the face of political turmoil, private sector innovation points to the nation’s strength.
In the face of political turmoil, private sector innovation points to the nation’s strength.
E arlier this week, Israelis went to the polls in a deeply consequential election. Tuesday’s vote was the country’s first since the massacre of October 7, 2023, and it served both as a referendum on the tenure of Israeli Prime Minister Benjamin Netanyahu and a larger statement about the country’s political and strategic future.
The stakes could hardly have been any higher. Three years of sustained conflict against a multitude of adversaries have fundamentally transformed the country’s security environment. The Jewish state has succeeded in degrading some of its most implacable foes, such as Palestinian terror group Hamas and Lebanon’s once-powerful Hezbollah militia. But growing international isolation and deepening domestic divisions have made the country’s political scene ripe for change. The election results reflected this tumult, resulting in a drop in popularity for Netanyahu. However, it also saw political underperformance by his challengers that — as of this writing — has left the country deadlocked.
Yet the current turmoil surrounding Israel’s political future is obscuring other, decidedly more positive news that points to a bright financial future for the country. In its latest forecast, issued on October 21, the Bank of Israel forecast national economic growth of 5.6 percent this year, and 7.5 percent in 2027. Other economic indicators are similarly encouraging. The country’s unemployment rate among working-age Israelis is projected to decline to just 3 percent next year, while inflation is expected to remain comparatively modest: 1.5 percent in 2026 and 2.1 percent in 2027.
Here, important qualifications apply. A large portion of the projected growth reflects production abroad by Israeli companies (rather than activity within Israel itself). Without it, the bank anticipates more modest growth of 3.4 percent this year and 5.1 percent the next. Even so, the broader picture is striking. After three years of war, political turbulence, and economic disruption, the statistics make clear that Israel’s economy isn’t just surviving. It is recovering.
That is all the more remarkable given the dislocation of the past three years. Since October 7, 2023, the country has been in a state of perpetual conflict — one that has been accompanied by massive disruptions in the national economy amid a mass mobilization of reservists to man the country’s multifront war against Hamas, Hezbollah, Iran, and other enemies. Communities in the country’s besieged north have experienced prolonged dislocation as well. Tourism has suffered, and the government has been forced to shunt tremendous resources into national defense. Yet the fundamentals of Israel’s economy have proven to be remarkably durable.
A principal reason is the strength of Israel’s high-tech sector, which remains a major engine of innovation and commerce. Israeli companies are truly world-class in fields such as cybersecurity and defense technology, and those firms continue to attract tremendous foreign capital. According to the Bank of Israel, the country’s high-tech sector raised $4.7 billion in the third quarter of this year alone — putting it in the same league as much larger economies like Germany and France in terms of tech investment.
Relevant, too, has been the ability of Israel’s private sector to adapt to adverse conditions. Since October 7, Israeli businesses have been forced to contend with manpower shortages, supply chain disruptions, and shifting consumer demand. Nonetheless, many have managed to maintain their commercial activities by adjusting their operations and finding creative ways to be productive during wartime. The results are visible in the country’s labor market, where demand for workers remains strong despite three years of extraordinary disruption.
None of this means Israel doesn’t face economic problems. Far from it. One is an alarming uptick in emigration; according to the Financial Times, some 150,000 Israelis have left the country since 2023. That “exodus” (the FT’s term) is happening for a variety of reasons, but it is nonetheless concerning at a time when Israel’s workforce is under pressure. Another is the country’s strained fiscal position, with persistent budget deficits and elevated public debt as the country struggles to bankroll its war.
Nor is the recovery guaranteed. As the bank notes, renewed conflict with Iran or flare-ups of other regional conflicts that require more large-scale military mobilization could undermine the country’s current positive trajectory.
Still, Israel’s economic performance is notable because it is a testament to something that’s often overlooked in discussions about the country: the resiliency of Israeli society itself. Three years after October 7, the country’s institutions, businesses, and entrepreneurs continue to function, innovate, and invest in the future.
That they do represents a resounding vote of confidence by Israelis in their own nation. It’s a timely reminder that, whatever political upheaval and strategic problems facing the country at present, the economic state of Israel’s union remains strong.