Israel’s Economy Is Thriving. Most Israelis Are Not.
· Time
Israel appears to have pulled off an economic miracle despite nearly three years of war. The technology sector has soared, the markets have set records, and foreign capital has continued to flow in. But the boom is restricted to a narrow corridor of the economy: high-skilled, export-facing, and insulated from sirens. The gap between this miracle and the losses absorbed by ordinary citizens is the cost the war has exacted.
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In June, a missile hit a vineyard near Bat Shlomo in the hills of northern Israel. The army had calculated it would fall on open ground, where nothing strategically vital would be lost. Israel’s finite, expensive interceptors were assigned elsewhere. The loss fell almost entirely on the family that farms it. The burned vines, the ruined harvest, years of growth erased by a single crater. The standard damage assessment by the government covered only a fraction of the losses. The grower is paying to test the scorched soil for contamination himself. The cold arithmetic of defense dictated that it was collateral damage worth accepting.
Israel’s economy has run on a version of this logic throughout nearly three years of war, and the parts of the market that were defended held remarkably. Tel Aviv’s benchmark index rose 52% in 2025, nearly tripling the S&P 500’s return. By the investment bank Jefferies’ tally, mergers and acquisitions reached roughly $82 billion, including the two largest foreign acquisitions in the country’s history: Google’s purchase of cybersecurity startup Wiz, and Palo Alto’s acquisition of identity security company CyberArk.
The International Monetary Fund projects economic growth for Israel in 2026 outpacing every G7 economy, all of it achieved through military reserve call-ups, mass displacement, rising security costs, and a war on multiple fronts. Investor confidence on this scale, sustained through years of fighting, is a rare achievement, and the acclaim it receives is deserved.
How did Israel pull it off? The answer rests in part on strong institutions and steady economic management, a central bank and a government that held the macro-economy together under fire. The United States helped Israel absorb some of the war’s direct costs by financing weapons, replenishing interceptors, and reinforcing Israel’s air defenses. What has also helped the economy is something easy to miss: the boom is narrower than it looks. The Bank of Israel estimates the first two years of war have cost some 177 billion shekels, or more than $57 billion in lost output, and the IMF’s latest review put the economy roughly 9% below its prewar trajectory.
The high-tech sector driving the headline numbers is small. It employs only about one in nine Israeli workers, pays them close to three times the average wage in the rest of the economy, and earns most of its revenue from customers abroad, who keep paying when the sirens sound. The other eight out of nine Israeli workers make their living in shops, farms, and one-person businesses that depend on local customers, the ones who stay home and lose a day's income every time the fighting flares up. Those Israelis have borne much of the toll of the war.
Ordinary Israelis and the costs of war
For the ordinary economy, the strain rarely looked like a crash. More than two years into the war that began in Oct. 2023, about half of Israel’s self-employed report earning less than they did before the war, according to a survey by the Israel Democracy Institute.
Consider Adi Degani, a small business owner, who taught kite surfing at Poleg Beach and on the Sea of Galilee. A reservist, he left his business and answered the call for active military duty during the war, serving for over 400 days, and leaving his business in debt. He took a bank loan to stay afloat and now works in construction. Israel gained enormously from his service, and he carries much of the burden alone.
Resilience is among the traits Israelis prize most, and it may also be the most expensive word in this story. The price it exacts from ordinary Israelis rarely reaches the headlines. A third of Israeli households spend more than they earn, with many in chronic overdraft at rates approaching 13%, and prices run further ahead of what incomes can support than in any other developed economy among the member states of the Organization for Economic Co-operation and Development. The banks on the other side of those overdrafts posted record profits through the war.
The toll is not only financial. The State Comptroller of Israel estimates three million out of 10 million Israelis suffer from symptoms of trauma, anxiety, or depression. For a second straight year, the Central Bureau of Statistics reports that more Israelis have left the country than have come home—a quiet outflow seldom counted among the war’s costs. No one chose this the way a commander chooses which missile to intercept. The losses simply settle on whoever stands beneath them, privately, one household at a time.
Even while carrying an extraordinary load—from mobilization and reconstruction to displacement and missile defense—the Israeli government moved to cushion the households closest to the blast. The state paid out billions of shekels compensating businesses and property owners for war damage through the national compensation fund, and the Bank of Israel pressed the country’s banks into a three-billion-shekel relief plan of deferred payments, waived fees, and eased credit. The relief has been real. It has not always been enough. Aid announced in shekels and percentages can still stall out before it reaches the kitchen table.
The limits of self help
Since Oct. 7, 2023, Israel’s civil society has answered on its own terms, and often led the way. What began in Nov. 2023 as a single question posted online became the Forum for Reservists’ Wives, now comprising some 20,000 women speaking for roughly 100,000 families. Its chief executive, Miriam Amedi, came to the cause through her own husband, the singer and Fauda actor Idan Amedi, who was severely wounded in Gaza.
The Forum has helped secure some 27 billion shekels, about $9 billion, in government support for reservist families across five legislative resolutions, and their advocacy work has resulted in legislation that shields working wives of reservists from dismissal and provides grants for self-employed spouses. Such measures cushion without fully rescuing, and some families still slip through, less a failure than a sign of how much the country has been carrying at once. When the state cannot catch everything, Israelis have long caught one another, and they are doing it again, faster than any policy could.
The grower will plant again next season, because that is what Israelis do, and the hope in that is stubborn. The harder work ahead is quieter and less photogenic. The self-employed reservist, the shuttered business, and the family one mortgage payment from selling the house cannot be left standing on open ground alone.
Israel doesn’t have the luxury of waiting for the war to end before it tends to what the war has cost at home. The borders are still volatile, and the threat from Iran has not passed, but a country that can defend its skies through years of war can also defend the ground its own people stand on. Israel will have to hold both at once. History has rarely granted it the peace to do one before the other.