Before war broke out between Israel and Hamas, Jeremy Welfeld’s brewery in the Israeli town of Emek Hefer produced 50,000 litres of beer a month, while his 14 restaurants around the country drew in thousands of customers each day.
In the two weeks since the conflict erupted, Welfeld’s businesses have ground to a halt. The brewery has produced nothing; 12 of his 14 restaurants are closed, and in one of the two that remain open, just five people came in during lunch hour on Thursday.
“On a normal day it’s between 50 and 150 people. Do you even open a restaurant [in these circumstances]? I can’t afford my overheads,” he said. “I’m not sure how exactly this is going to play out. It might really be the last straw that might bring down the company.”
As the country reels from the deadliest attack on its territory on October 7, companies’ trade on half-empty streets has collapsed.
In Israel, the war has hit a country whose economy has prospered, despite its decades-long conflict with the Palestinians, while the occupied West Bank and hemmed-in Gaza have long been blighted by poverty and unemployment.
The initial shock at Hamas’s October 7 assault forced Israel’s bars and restaurants to close, and hundreds of flights to be cancelled. A record mobilisation of military reservists — about 360,000 have been called up — has left businesses that are still open short of staff.
Rocket fire from Palestinian militants in Gaza — and increasing tensions with Iran-backed Hizbollah militants in Lebanon — has prompted large areas on its northern and southern borders to be evacuated.
The war erupted after Hamas, the Palestinian militant group, broke through security barriers around Gaza to launch a multi-faceted attack in southern Israel during which more than 1,400 people were killed, according to Israeli officials.
Israel responded by bombarding Gaza and cutting off water, fuel and power to the strip, causing UN officials to warn that a catastrophic humanitarian crisis would unfold in the enclave. Israel’s assault on Gaza, which is controlled by Hamas, has killed 5,087 people, according to Palestinian authorities. It has also sparked fears that the war will trigger a broader conflict.
The war and regional tensions have rippled through Israeli markets, with the blue-chip TA-35 index down 9 per cent, and the shekel tumbling below 4 to the dollar as investors bet on a prolonged conflict with big economic costs. The price of insuring Israeli government debt has soared.
Guy Beit-Or, chief economist at Psagot Investment House, said the fallout could be worse than Israel’s month-long confrontation with Hizbollah in 2006 — one of its biggest recent wars — and that economic output could contract by as much as 2 or 3 per cent between the third and fourth quarters.
“We are ahead of a long operation and it will take a serious toll on the Israeli economy,” he said. “People are cancelling holidays, parties, events. People are staying at home. The kids are at home, so lots of people can’t work.” Schools across Israel have switched to remote learning.
In the services sector, the strains are acute. In a normal week, Nina Mizrahi, a taxi driver from northern Israel, completes 20 to 40 journeys a day. In the past week, she has averaged one. “There is no work,” she said. “I really don’t know how small businesses are going to [keep going].”
Tourism has also suffered, just as the traditional October-December high season begins. Ganit Peleg, chair of the Israel Tour Guides Association, said some tours up to two years from now had been cancelled, amid fears that a retaliatory invasion of Gaza could spiral into a regional conflagration.
“We have been receiving cancellations on a daily basis,” she said, adding that the collapse in business was reminiscent of what happened during the pandemic. “We just recovered from Covid. And here we are again.”
In the areas of southern Israel around Gaza that bore the brunt of Hamas’s assault, the signs of economic pain are everywhere. Before the war, Sderot was a town of 30,000 people. By this week it was a ghost town, with more than 90 per cent of its population evacuated, rows of shops shut, and traffic lights at intersections blinking permanently orange.
As the likely scale of the impact has become clearer, demands for government help have grown. On Thursday, finance minister Bezalel Smotrich announced a plan to help businesses whose revenues have been hit to cover their fixed costs, as well as financial assistance for workers unable to get to work. The central bank has also stepped in, announcing last week it would sell up to $30bn of dollar reserves to shore up the shekel.
Smotrich said that as a result of the aid plans, the government’s deficit could rise to 3.5 per cent this year, more than the 1.1 per cent it had previously targeted. Economists are predicting a much bigger shortfall next year.
But Rafi Gozlan, chief economist at IBI Investment House, said that, with the ratio of debt to national output at a lower level of about 60 per cent and the central bank sitting on about $200bn of foreign exchange reserves, Israel was going to war on a better footing than in previous conflicts.
“This time is quite different. It allows both the Bank of Israel and the government to finance the necessary budget deficit that’s going to increase quite sharply,” he said. “We are going to see quite [some] damage to activity, but it has to do with the length and the depth of the military operation.”
Although Israel has fought multiple wars in its 75-year history, its economy has always bounced back. Erel Margalit, founder of venture capital firm Jerusalem Venture Partners, said that, although investors had been asking lots of questions about the conflict, deals were still being done in the powerhouse tech sector, which was robust enough to cope.
“We built the high-tech industry during security challenges,” he said.
Jon Medved, chief executive of OurCrowd, a crowdfunded investment vehicle based in Jerusalem, also said he expected the economy to bounce back.
“What’s bizarre is how normal it’s become,” he said. “People realise that there is risk everywhere. It’s just a matter of mitigating it.”
Even amid the turmoil, some workers in the high-tech sector are returning to work. “People will have to go — as crazy as what I’m about to say is — [back] to some normality,” said Ariel Cohen, chief executive of corporate spending start-up Navan. “To get back to working is actually really important. Someone will need to pay for this war.”
Welfeld, however, is more wary. For now, he is taking things day by day. “I’m hoping that next week we might get back [and open some of our restaurants] with a skeleton crew and see what happens,” he said. “But it’s complicated. It’s really complicated. Because I have a feeling that this little show that we’re in — it’s going to go on for a while.”
