Israeli economy faces war strain
The Israeli government is facing increasing financial pressures due to the expansion of its military budget to over 142 billion shekels in 2026, as a result of the war on the Gaza Strip that began in October 2023. The military budget has more than doubled compared to pre-war levels. This has led to cuts in civil sector spending, such as education and healthcare, with reductions of approximately 2.6 billion shekels across various budgets, alongside rising budget deficits and debt, which threaten the government's ability to fund essential services and weaken economic growth. Additionally, the unemployment rate in the advanced technology sector—one of the main economic drivers—is rising, driven by decreased demand for employment and increasing unemployment, especially in software and engineering fields. This poses risks to tax revenues and overall growth. Moreover, demographic shifts, particularly the increasing proportion of the Haredi community, present long-term challenges to the economy. Projections suggest that if current spending patterns continue and the participation of these populations in the labor market remains low, the country could face massive financial losses amounting to hundreds of billions of shekels by the middle of the next decade. Amid these challenges, the government is considering options such as raising taxes and reducing services to balance the costs of military operations with economic and developmental needs.
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