Loyal customers of Israel’s Atlas Hotels recently received an unusual email – a desperate request for donations to save the company from collapse.
Atlas has opened its 16 boutique hotels to 1,000 evacuees displaced after Hamas’ deadly rampage in southern Israel on October 7. When the government failed to meet the costs, a whip began.
“We asked for help from suppliers, contacts abroad, our employees and the Atlas A-list – our best customers,” said operations manager Lior Lipman. The message was clear, he added: “If we can’t finance ourselves, the business will collapse.”
Israel’s war against Hamas has sent shockwaves through Israel’s $488 billion economy, crippling thousands of businesses, straining public finances and plunging entire sectors into crisis.
Prime Minister Benjamin Netanyahu has vowed to create an “economy under arms,” pledging large cash transfers to vulnerable companies and regions on a scale most recently seen during the Covid-19 pandemic.
“My leadership is clear: We open the taps and pump money to everyone who needs it,” he said Thursday. “Over the last decade we have built a very strong economy and whatever economic price this war takes on us, we will pay it without hesitation.”
An Israeli soldier guards a road near the border with Lebanon. About 8% of Israel’s workforce was called up as reservists © Fadel Senna/AFP/Getty Images
He spoke as Finance Minister Bezalel Smotrich unveiled handouts for army reservists and measures to compensate companies for war losses.
Some business leaders welcomed the aid package, but for many it did not go far enough. Critics said the eligibility criteria were too strict, while others said the measures were of no help to large companies.
“The government is failing its people,” said Ron Tomer, chairman of the Manufacturers Association of Israel. Many would not be fully compensated for the loss of earnings, he added: “They will have a nasty surprise when they get their next salary.”
Lipman said Atlas Hotels is still waiting for government help. “I would expect the country to support me if I try to help people,” he added. “[But] I’m not sure we’ll have a safety net.”
Israel has been in a state of shock since Hamas’ violent attack, which officials said left more than 1,400 people dead. They responded with a ground invasion of Gaza and a relentless bombardment that killed more than 9,700 Palestinians, according to the enclave’s health ministry.
About 350,000 Israeli army reservists – 8 percent of the workforce – were called up as the country mobilized for war.
Meanwhile, 126,000 civilians were relocated from northern and southern Israel to protect them from Hamas rockets and mortar attacks by Hezbollah, the Iranian-backed Lebanese militant movement.
Polls show overwhelming public support for the war. But its scale takes Israel into new territory. The most comparable event is the 2014 Gaza War, when Israeli forces previously invaded the impoverished strip, but it lasted 49 days and involved far fewer reservists.
“There is a lot more uncertainty this time,” said Michel Strawczynski, an economics professor at the Hebrew University in Jerusalem. The “more difficult objectives” this time – eliminating Hamas and ending the militant group’s rule in Gaza – “mean the war is likely to last longer.”
There are some signs of recovery after the initial shock of the Hamas attack: the shekel is holding up thanks to Bank of Israel interventions, and consumer demand is starting to recover, albeit slowly. On Monday, Israel’s central bank announced it would provide up to Shk10 billion ($2.6 billion) to the banking system to help small businesses affected by the war access low-interest loans. The program will run until the end of January, the bank said.
However, the conflict continues to have a chilling effect on business activity, particularly in the construction sector.
“Many construction sites were closed by the municipalities,” said Tomer. “They don’t want Palestinian workers there. They say people are upset by the sight of Arab workers holding heavy tools.”
Discretionary spending also took a big hit. “Not only are people afraid of missiles, they are also in a terrible mood, mourning the loss of friends and relatives,” said Victor Bahar, chief economist at Bank Hapoalim. “That suppresses consumer demand.”
Evidence is already mounting of the war’s destructive impact on economic activity. A survey of Israeli companies by the Central Bureau of Statistics found that one in three companies had closed or operated at 20 percent or less capacity since their founding, while more than half had reported sales losses of 50 percent or more.
In the south, the region closest to the Gaza Strip, the results were even worse, where two-thirds of companies had either closed or reduced their operations to a minimum.
Meanwhile, the Labor Ministry says 764,000 Israelis – 18 percent of the labor force – are not working after being called up for reserve duty, evacuated from their cities or forced to care for their children at home by school closures.
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The measures unveiled by Netanyahu and Smotrich last week are more generous than an earlier package that was criticized by business groups. Under the new regulations, the government will support companies whose monthly revenues have fallen by more than 25 percent due to the war, including by covering up to 22 percent of their fixed costs and 75 percent of their labor costs.
But experts fear this may not be enough if Israel’s economic prospects continue to deteriorate. “It’s better now, but it’s still hard to say if this is the end of the story,” Strawczynski said.
Others argue that the support package should be accompanied by a rethink of government spending priorities. Netanyahu’s coalition partners from ultra-Orthodox and settler parties continue to pour huge sums into projects that critics say have no place in a war economy, such as a program to promote religious practice among students.
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Last week, a group of 300 leading Israeli economists called on Netanyahu and Smotrich to “come to their senses.”
“The severe blow inflicted on Israel requires a fundamental change in national priorities and a massive reallocation of resources to address the damage of war, aid the victims and repair the economy,” it said in an open letter.
Netanyahu said Thursday the support package was “just the beginning.” We will defeat the enemy in the military war and also win the economic war.”
But Eugene Kandel, chairman of the Start-Up Nation Policy Institute, a think tank and one of the signatories of the economists’ letter, said the government “still has not shown that it understands the gravity of the situation.”
“It is necessary to quickly focus on the war, restore people’s trust in the state and its leadership, and invest in Israel’s resilience,” he said. “Every ministry and its budget should potentially be on austerity.”
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