C-Archief

Is Israel’s genocide economy on the brink? Economist Shir Hever explains how the Gaza war mobilization propped up a ‘zombie economy’ that appears to function but lacks any future horizon. Amos Brison By Amos Brison December 16, 2025 People walk through Tel Aviv’s Carmel Market, partially closed following ongoing missile attacks from Iran, June 23, 2025. (Yonatan Sindel/Flash90) People walk through Tel Aviv’s Carmel Market, partially closed following ongoing missile attacks from Iran, June 23, 2025. (Yonatan Sindel/Flash90) Since October 2023, Israel has faced a convergence of economic shocks. Tens of thousands of residents have been displaced from border regions in the south and north as a result of hostilities with Hamas and Hezbollah, while hundreds of thousands of reservists were pulled out of the workforce for extended periods, leaving key sectors short-staffed and productivity depleted. Public services, education, and healthcare have deteriorated as state spending was diverted to the war, and almost 50,000 businesses have gone bankrupt.

Capital flight — particularly in the high-tech sector — together with a growing reliance on foreign loans has added significant strain to the economy, with debt expected to reach 70 percent of GDP in 2025. Israel’s international standing has also weakened: Once-stable trade partners are turning away, sanctions and boycotts are expanding, and major investors are beginning to look elsewhere.

An annual poverty report published Dec. 8 by the Israeli NGO Latet underscores the depth of the social crisis. Household expenses have risen dramatically since the war, nearly 27 percent of families and over one-third of children now experience “food insecurity,” and about a quarter of aid recipients are “new poor” pushed into hardship over the past two years.

Yet, at the same time, Israel’s economy has also displayed signs of resilience. The shekel has appreciated nearly 20 percent against the U.S. dollar since the start of the war, and the Tel Aviv Stock Exchange has reached record highs, buoyed in part by wartime spending and central-bank intervention.

To make sense of these seemingly conflicting signals — surging markets alongside deepening social and economic turmoil — it is necessary to look beyond traditional indicators. Israeli economic researcher and BDS activist Shir Hever argues that Israel is now operating in what he calls a “zombie economy,” one kept moving through massive military expenditure, foreign credit, and political denial.

Dr. Shir Hever (Courtesy) Dr. Shir Hever (Courtesy) For over two decades, Hever has examined the ties between the Israeli economy, militarism, and the occupation. In an interview with +972 Magazine, he explains why Israel’s economic crisis cannot be measured simply in terms of GDP or inflation, and why the pillars that once sustained its growth — foreign investment, technological innovation, and global integration — are beginning to erode. He also discusses the illusion of a sustainable wartime economy, the social and economic toll of prolonged mass mobilization, and how Israel’s growing isolation in global markets may signal the start of a long-term decline.

The interview has been edited for length and clarity.

To start, if we assume the Gaza war, in the form that it’s been waged over the past two years, has finally ended, do you expect the Israeli economy to recover — and, if so, how would that happen?

I think it’s important to first ask: Recover from what?

Israel’s economic problem is multifaceted. First, there is direct harm to productivity because of the displacement of tens of thousands of households from areas close to the borders with Gaza and Lebanon, and from direct damage inflicted by missiles and rockets in those areas.

Second, the recruitment of almost 300,000 reserve soldiers for a very extended period of time caused a noticeable drop in participation in the workforce. It also erased countless days of training that had been invested in these workers, at a time in which the means to educate and train replacements is far from full capacity.

Third, the educated middle class in Israel is starting to consider emigration, and tens of thousands of families have already emigrated.

Passengers at the departure hall at Ben Gurion International airport, near Tel Aviv, September 18, 2025. (Chaim Goldberg/Flash90) Passengers at the departure hall at Ben Gurion International airport, near Tel Aviv, September 18, 2025. (Chaim Goldberg/Flash90) Fourth, the financial crisis: Many Israelis took their savings abroad in anticipation of inflation, coupled with a loss of value of the Israeli currency, a drop in Israel’s credit rating, and an increase in Israel’s risk premium.

As resources were diverted for the war — with the government’s own data showing that it has purchased tens of billions of dollars’ worth of weapons on credit — the quality of public services and higher education has declined dramatically. Israel has never in its history been closer to reaching a debt-trap [a situation in which the state is forced to take out loans in order to cover the interest payments on older loans].

Finally, and this is very important, Israel’s brand has become toxic. It faces boycotts, divestments, and sanctions on a level that has never been seen before. Israeli businesses find that former business partners abroad shy away from dealing with them.

I read this article on Ynet where they interviewed a bunch of Israeli business people who were saying how isolated they feel, and how their business partners, even long-term ones, say they don’t want anything more to do with them. They described how, even in “very friendly countries [to Israel]” they were told “please delete all records of this meeting, we don’t want anyone to know that we met with you.” They most likely referred to Germany, as the IFA fair had just taken place in Berlin prior to the interview.

In recent months you’ve described Israel’s economy during the Gaza war as a “zombie economy.” Could you explain what you mean by that?

I call it a zombie economy in the sense that it’s an economy that is moving but is not aware of its own state of crisis or its impending demise.

People shop at the Ayalon shopping mall during the Passover holiday, in Ramat Gan, April 14, 2025. (Miriam Alster/Flash90) People shop at the Ayalon shopping mall during the Passover holiday, in Ramat Gan, April 14, 2025. (Miriam Alster/Flash90) A capitalist economy is based on the idea of a constant, future horizon. You cannot have a capitalist market without investment, and investment is based on the idea that you invest the money now in order to make a profit in the future. But in Israel, the government has passed a budget that is detached from the actual expenditure, driving the debt out of control, and the draft of next year’s budget is equally delusional.

At the same time, many of the most talented and educated people are leaving the country because they don’t want to raise their children there. This is precisely the opposite of a future horizon — a state that plans for the immediate term rather than the long term.

So while the economy might appear to be functioning on the surface, that’s largely because a significant portion of the population has been mobilized for reserve duty — armed, equipped, fed, and transported to sustain the war. The war is the main economic activity that the government is undertaking; even now, two months into Trump’s so-called ceasefire, there hasn’t been a mass release of reservists back to civilian life.

Haaretz calculated that the destruction of the Gaza Strip is the largest engineering project in Israel’s history. The amount of cement, construction materials, vehicles, and fuel being used surpasses the construction of HaMovil HaArtzi [the national water pipe], which was the big engineering infrastructure project of the 1950s, and of the West Bank separation wall, which was the big engineering project of the early 2000s. So this is really an economy that appears to be functioning, but without any trajectory for a future. It’s based on a delusion.

Presumably, all the reservists who served in the war, and all the people who were displaced from their homes in the south and the north, are going to re-enter the workforce at some point. Could that allow Israel to escape an economic crisis?

To begin with, many of those reservists simply won’t have jobs to return to, because more than 46,000 businesses have gone bankrupt during the war.

There’s also the psychological aspect. I’m not qualified to answer what happens when these people try to resume civilian life, but the impact is likely to be dramatic. Will they use violence whenever something annoys them, as they did for hundreds of days in Gaza? Are they going to require a tremendous amount of psychological treatment to manage the trauma and guilt? We’re already seeing a lot of soldiers committing suicide.

Israeli soldiers who suffer from PTSD stage a protest demanding better rights and conditions, outside the Knesset, Jerusalem, November 3, 2025. (Chaim Goldberg/Flash90) Israeli soldiers who suffer from PTSD stage a protest demanding better rights and conditions, outside the Knesset, Jerusalem, November 3, 2025. (Chaim Goldberg/Flash90) Remember that these are also people who haven’t spent any time keeping up with developments in their professions and instead were committing genocide in Gaza, so this also feeds into the technological and educational crises. University enrollment has not kept pace with population growth, meaning Israel is on track to become less educated in the long run.

Then there are the approximately quarter of a million Israelis who are displaced from their homes near the borders with Gaza or Lebanon, who have been living for over a year in hotels. They’ve been living under the assumption that they might be asked to return at any moment. It’s very difficult to find new jobs in this condition since their c