At 6:45 a.m. on October 7, Jack Bigio, founder of technology company UBQ Materials, spoke to his chief operating officer, who said there were terrorists in his kibbutz. Other employees sent text messages saying they were hiding in safe rooms and one said her husband had been shot in the stomach.
“It was like doomsday,” Bigio said.
The Hamas attack on Israel forced UBQ Materials to close its plant, 20 miles from the Gaza border, and left its workforce in shock. Two employees were killed. Many lost their homes and were relocated 100 miles away.
Founded in 2012, UBQ Materials uses technology that turns household trash into a substitute for plastic used to make tables, chairs, McDonald’s trays and car parts for Mercedes-Benz. The company was able to get up and running within three weeks, but many others face ongoing problems with operations and financing.
Some 23,000 Palestinians have been killed by Israel since October 7, according to Gaza’s Health Ministry, which does not distinguish between civilian and combatant deaths. Around a million evacuees from the north of the territory have fled to the south. The strip has suffered widespread destruction, with hunger; interruption of water, electricity and communications networks; and limited medical care, as many hospitals have been damaged.
In Israel, the Hamas attacks on October 7 killed 1,200 people and led to the taking of hundreds hostage, including more than 100 who remain detained in Gaza, according to Israeli authorities. The war has turned life upside down, with hundreds of thousands of reserve soldiers called up and 200,000 people displaced from northern and southern border areas.
In ways that are often less visible outside the country, the war has also damaged Israel’s economy. Tourism has practically come to a standstill and government spending has skyrocketed. The hit to technology companies has shaken confidence in a sector that has become a key driver of Israel’s economy.
The call-up of 350,000 army reservists disrupted operations at many companies. Many customer orders were put on hold or canceled outright, and investors began to pull back. According to a survey by the Israel Innovation Authority, a government-funded agency, and the Start-Up Nation Policy Institute.
Israel’s technology sector has grown rapidly over the past decade, accounting for nearly half of all exports and a fifth of economic output, the Israeli Innovation Authority saying.
As a result, the Organization for Economic Cooperation and Development said, the war will cause a “temporary but pronounced slowdown” of Israel’s economy. It had grown about 3 percent before the Oct. 7 attacks and is now expected to slow to 1.5 percent this year. Labor shortages, lower consumer and business confidence, and higher inflation weigh on the economy.
Another concern is foreign investment, which was already weak before Oct. 7 due to uncertainty caused by the dispute between Prime Minister Benjamin Netanyahu’s right-wing government and Israel’s Supreme Court, said Jonathan Katz, a former economic forecaster at the ministry. of Israeli Finance.
“Now the question is whether foreigners will still want to invest in Israeli high technology, or whether they will prefer to invest their money somewhere that is safe and quiet, like Ireland,” Katz said.
To stimulate the weakening economy, the Bank of Israel last week cut interest rates by a quarter point, to 4.5 percent. It was its first rate cut since the start of the Covid pandemic, and central bank governor Amir Yaron said further cuts were expected.
Yaron has said that the economy was already adapting to war conditions and showing signs of recovery, but that the ramifications of prolonged hostilities would be significant.
In particular, he emphasized the importance of stability and the need to curb rising public spending, which the central bank hopes will contribute to higher public debt and larger deficits.
“It is clear to all of us that the current economic uncertainty is closely related to the security situation and how the war will develop,” Yaron said.
Israel has taken several steps to calm uncertainty, including stabilizing the Israeli shekel. The government plans to increase the number of foreign workers allowed in the country from 50,000 to 70,000, to address a sudden labor shortage. Foreign workers have fled since more than 100,000 Palestinians from the West Bank have been banned from working in Israel.
In recent weeks, the military has also begun withdrawing several thousand troops from the Gaza Strip, at least temporarily, in part because of the economic cost of such a massive deployment of reservists.
Still, Yaron issued a stern warning on Jan. 1 to Netanyahu about fiscal priorities at a time when more spending must go toward defense and security and pressing domestic needs, such as making communities near Gaza’s borders livable and Lebanon after they were attacked by Hamas and Hezbollah militants. Criticism of the Netanyahu government’s funding of West Bank settlements and the ultra-Orthodox has intensified since the war.
“Failure to act now to tighten the budget through spending cuts, eliminate redundant ministries and increase revenues in light of war needs will likely cost the economy much more in the future,” Yaron said.
The war in Gaza, one of the longest Israel has ever fought, is already having repercussions throughout the economy.
Construction, which accounts for 14 percent of Israel’s economy, has slowed due to labor shortages. Although volunteers have helped, the departure of foreign workers and the loss of Palestinian labor has meant that fruits and vegetables rot on trees and in fields.
Additionally, some imports are in short supply because attacks by Houthi rebels in Yemen have disrupted transportation through the Bab el-Mandeb Strait.
Tourism immediately plummeted on October 8, just as it was recovering after the Covid pandemic, government officials said.
“There is nothing: no Israeli tourists, no non-Israeli tourists, no weddings, no henna celebrations before weddings, no housewarmings. Nobody is celebrating,” said Tomer Bent, who runs King David Treasures, a Judaica store on Jerusalem’s popular Ben Yehuda shopping street, which is often packed with people eating pizza and falafel or drinking coffee at sidewalk restaurants.
“But it will get better,” Mr. Bent said, pointing toward the sky. “We believe in Him.”
Shops in Ben Yehuda used to stay open until midnight in late December, when American tourists visited during the winter and Christmas holidays, said Moshe Saudi, who worked in a souvenir shop. Now they close early.
The Israel Innovation Authority has $100 million in government funding to support technology companies, especially startups that have lost funding. The industry was encouraged by last month’s announcement that semiconductor giant Intel would proceed with a planned $25 billion investment to expand a chip factory in southern Israel, after receiving a $3.2 billion grant. of the government.
“All of our entrepreneurs understand that no matter how much our overseas customers support and empathize with us, if we cannot meet our commitments, they have to move on,” said Dror Bin, CEO of the Innovation Authority.
Shortly after the war broke out, the organization began a new promotional campaign to increase trust in Israeli technology companies, despite the war. The motto: “Israeli technology delivers. IT DOES NOT MATTER THAT.”