In late September, as Israel's year-long conflict intensified and its credit rating faced another downgrade, Finance Minister Bezalel Smotrich acknowledged the strain on the country's economy but emphasized its resilience. "Israel's economy bears the burden of its longest and most expensive war," Smotrich stated on September 28, following the assassination of Hezbollah leader Hassan Nasrallah in Beirut, which heightened concerns about escalating tensions.

Israel's multi-front offensive, including ground incursions in Lebanon and airstrikes in Gaza and Beirut, coincides with a regional economic downturn. "A more intense and prolonged war will severely impact Israel's economic activity and growth," warned Karnit Flug, former governor of Israel's central bank, in a  interview on October 1.

The United Nations reported a rapid economic decline in the West Bank, while Gaza is mired in an economic and humanitarian crisis. BMI forecasts a Lebanese economic contraction of up to 5% this year due to the conflict. Israel's economy, once predicted by the IMF to grow by 3.4%, now faces projections ranging from 1% to 1.9%, with an even weaker outlook for the next year.

Inflation, driven by rising wages and increased government spending on the war, has thwarted efforts by Israel's central bank to stimulate the economy through interest rate cuts. The Bank of Israel estimates war-related costs at 250 billion shekels ($66 billion) through next year, equivalent to 12% of Israel's GDP.

Finance Minister Smotrich remains confident in the economy's post-war recovery, but experts like Flug fear that defense spending could come at the expense of investments, hindering future growth. A report from the Institute for National Security Studies suggests a long-term economic weakening, with potential tax hikes and spending cuts exacerbating the risk of recession.

The tech sector, a significant contributor to Israel's GDP, faces challenges as some companies consider relocating abroad, according to Avi Hasson, CEO of Startup Nation Central. The war's insecurity and the government's economic policies threaten the sector's resilience.

Beyond tech, other sectors like agriculture, construction, and tourism are reeling. Israel's tourism ministry estimates a revenue loss of 18.7 billion shekels ($4.9 billion) due to the war. The Norman hotel in Tel Aviv, like many others, has seen occupancy rates plummet from over 80% to below 50%, with general manager Yaron Liberman citing uncertainty as the primary challenge.

"The biggest factor is the uncertainty," Liberman said in mid-September. "When is the war going to end?"