Israel’s Economy Remains Resilient Despite War

War is expensive. It’s a lesson Israel learned early in its history, but it’s also a lesson that has been driven home since the attack by Hamas on Oct. 7, 2023. Israel’s monthly military spending, according to the Stockholm International Peace Research Institute, rose from $1.8 billion a month before the attack to $4.7 billion two months later, at the end of 2023.

That increase held fairly steady in 2024, as Israel’s military expenditures topped $46.5 billion, an increase of 65 percent over the previous year. That’s 8.8 percent of GDP, the total value of all the goods and service produced in the country. Only Ukraine spends more as a percentage of its economy.

Yet, despite all the strains to Israel society, a war that has been fought on several fronts, and the hostility that Israel has endured in many countries, the country’s economic outlook is positive. At Israel’s most important economic conference, at the Israel Democracy Institute, the chair of the gathering, Karnit Flug, a former governor of the Bank of Israel, didn’t minimize the challenges the country faces.

She fears, though, that without more prudent government spending, the nation’s standard of living could erode, economic progress could stall, and Israel could lose many of its most productive citizens to other countries.,

“It’s not sustainable to increase the burden on the part of the population that serves in the country, pays taxes, and has high productivity, because they are also the ones who are the most likely to leave, and we don’t want to go down that road.”

In the 2025 Israel budget, military spending drops somewhat to $38.6 billion, but overall government spending is Israel this year is up 21 percent over last year, to a record $215 billion, the most money Israel has spent on itself since its founding in 1948.

In the last 21 months, since the attack by Hamas and the campaign against Hezbollah in Lebanon, there have been other costs for Israel to assume. Many army reservists have spent hundreds of days on active duty. Others have moved from their homes because of the attacks from Israel’s enemies along its borders or because of damage from Iran’s missile strikes last month. Spending on social services is up, and psychological counselors have strained to keep up with their caseloads.

There was also concern about the growing burden of many of Israel’s least productive citizens, the ultra-religious haredim, who largely exist on government welfare payments and resist military service and secular education that would help lift them from poverty.

The president of the Israel Democracy Institute, Yohanan Plesner, quoted a study the organization completed that showed only half of the haredi male population is gainfully employed, mostly in low-skilled jobs. Only a third of the ultra-religious population make enough to pay taxes, but because of the power they wield as a group in the present government payments to them are on the rise.

At the opposite end of the economic spectrum are the high-tech entrepreneurs who continue make Israel a world leader in technological innovation. The head of the Aaron Institute for Economic Policy at the private Reichman University, Zvi Eckstein, told his audience at the Democracy gathering that technology is more than the driving force in Israel’s economy, it is its battleship.

High-tech services and products account for almost two-thirds of Israel’s exports and about one-fifth of the total GDP. Twenty-five percent of all of Israel’s income tax revenues come from the 390,000 high tech employees in Israel.

Startup Nation Central, which monitors the country’s technology sector, reports that Israeli tech raised $12 billion in investments last year, a 27 percent increase from the previous year. Four months ago, Google’s parent company, Alphabet, agreed to buy the cyber security firm Wiz for $32 billion in cash. It’s the largest price ever paid for an Israeli company and is the largest acquisition in the American company’s history, more than three times what it paid for Motorola Mobility in 2012.

Wiz was founded just five years ago, just as the COVID pandemic was transforming businesses around the world. The growth of a workforce confined for the most part in their homes working remotely from their offices drove the growth of cloud-based computing with an increase in security risks. It was a big boost to the Wiz portfolio of cybersecurity solutions for cloud-based computer programs. The deal was another indication that greater security is not just a concern of Israel and its military.

In announcing the agreement, CEO Sundar Pichai pointed out that all businesses and governments are searching for more protection.

“Together, Google Cloud and Wiz will turbocharge improved cloud security,” Pichai said, “and the ability to use multiple clouds.”