Israel’s economy is struggling. Economists say ending the war would help

JERUSALEM — In Jerusalem’s Old City, nearly all souvenir shops are closed. “The economy right now is under huge uncertainty, and it’s related to the security situation — how long the war will go on, what the intensity will be and the question of whether there will be further escalation,” said Karnit Flug, Israel’s former central bank chief who is now the vice president of research at the Israel Democracy Institute, a Jerusalem think tank. “In our view, the conflict in Gaza could last well into 2025,” Fitch warned in its rating note, which cited the possibility of “significant additional military spending, destruction of infrastructure and more sustained damage to economic activity and investment.” In another worrying sign, the Finance Ministry this month said the country’s deficit over the last 12 months has risen to over 8% of GDP, far exceeding the 6.6% deficit-to-GDP ratio the ministry projected for 2024. Smotrich said Israel’s economy “is strong” and vowed to pass a “responsible budget that will continue to support all the needs of the war, while maintaining fiscal frameworks and promoting growth engines.” The unemployment rate has dipped below pre-war levels, Sheinin said, to 3.4% in July compared with 3.6% in July of last year. It would have meant letting the gardens, which we’ve developed over 120 years, go fallow.” Sheinin said the best way to help the economy bounce back would be to end the war.