The shekel sees further volatility and depreciation in the wake of the new Hamas-Israel conflict

Major loss of civilian life and a pending re-invasion of Gaza have radically altered the risk picture in the Hamas-Israel conflict, with major consequences for the Israeli economy

Q4 2023 business activity will be highly disrupted, with 2024 budgets now having to be revisited. 

In the immediate term executives can expect:

  • Very volatile consumption patterns, as consumers stockpile basic goods but drop consumption of all nonessential goods and activities. 
  • A drop in demand for durable goods or the luxury/nonessential category, driven by mobility restrictions as businesses remain closed across numerous cities and consumer-confidence weakens.
  • A severe halt to hospitality sector activity across major cities in Israel as consumers refrain from such activity due to safety concerns. 
  • A halt to tourism sector activity. 
  • A reprioritization of government procurement resources toward security.
  • A halt to the implementation of large business sector investments, and a focus on only essentials for operational expenditures.
  • Disruptions to logistics, preventing goods from reaching customers, retailers, or partners.
  • Increase in insurance costs, as well as ongoing FX volatility risk.

Into early 2024, MNCs should plan for: 

  • A shift in government priorities, including a significant increase in defense spending and cuts to nonessential procurement and investments. 
  • An increase in public sector investment spending toward security and reconstruction of damaged basic infrastructure.
  • Ongoing hit to business confidence as risks to doing business multiply and labor shortages grow. Labor and logistics costs along with shipping-insurance premiums will rise and remain elevated through H1 2024.
  • Return of domestic political fissures and tensions that could protract instability, keep confidence muted, and maintain logistical disruptions.
  • An increase in the compensation budget allocated to employees, likely due to an increase in inflation

For an overview of how MNCs can respond to the situation, executives can follow our upcoming insight bite on key actions to take.


  • Conflict updates:
    • Following months of settler attacks on Palestinian residents and properties in the West Bank and increasingly harsh rhetoric from Israel’s right-wing government, Hamas launched a large surprise offensive on Israeli settlements and towns in the south on October 7. 
    • Israel has called up 300,000 reservists. Israeli forces have regained control of the settlements and towns surrounding Gaza as of October 11. 
    • Tens of thousands of Israeli soldiers have amassed near the Gaza fence, and Israeli forces have announced a total siege of the strip, ending all movement of water, food, and fuel into Gaza despite UN backlash. 
    • Israeli forces have bombed Gaza’s Rafah border crossing with Egypt numerous times in the past 24 hours and warned the Egyptian authorities that any aid supply trucks would be struck, raising tensions on the border. 
    • As of Wednesday morning, Hamas’s offensive had left more than 1,200 Israelis dead. More than 2,400 wounded have been taken to hospitals. About 140 Israelis are estimated to have been captured by Hamas. At least 1,100 Palestinians had been killed and 5,200 wounded in Israeli air strikes on Gaza as of Wednesday morning.
  • Israel’s domestic political situation:
    • PM Benjamin Netanyahu has now agreed to undisclosed conditions, paving way for Gantz to enter the scene and form a unified War Cabinet emergency government. This sees the extremist far-right representation axed and reduces (for now) further internal escalations.
    • Israeli politics has been severely polarized in recent months, with the judicial reform crisis causing mass protests and public anger.
  • Population movements:
    • All Israeli civilians have been evacuated from areas around the Gaza barrier, and Israeli sources signal 75% of residents in the northern region of Galilee have made their way to more central areas. 
    • The Tel Aviv Metro Area, which accounts for around 50% of Israel’s GDP, has been subject to rocket barrages from Gaza. MNCs with local offices in Tel Aviv have temporarily closed them or asked employees to work from home until further notice.
  • Business activity:
    • Israel declared a national civil emergency, restricting civilian movement and business activity. Only essential activities are allowed to proceed in many areas.
    • Malls across the country have shut down or are open only on an emergency basis, with food stores and pharmacy chains in operation. Most fashion stores and restaurants have closed. Several retail MNCs with operations in Israel have announced a temporary closure of all stores in the country. Logistics providers have also suspended service.
    • Israel has suspended production at the Tamar gas field, a major source of gas for the utility and manufacturing sectors and of exports for the Egyptian and Jordanian markets.
  • Potential product shortages:
    • Supermarkets and other retail stores have been overwhelmed by customers rushing to stock up on essential products, exacerbating existing shortages of consumer goods.
    • Shufersal, Israel’s largest supermarket chain, has announced a limit on the amount of certain food items that shoppers can purchase.
  • Tourism sector:
    • At its pre-pandemic peak in 2019, Israel’s tourism industry accounted for about 5.1% of the country’s GDP—or US$ 10.4 billion. Ben Gurion airport is seeing long queues for outbound flights, with many tourists or dual-citizens making their way back home. 
    • Several countries, including the US, have issued official warnings against travel to Israel. Israel’s tourism sector has been shut down.
    • Several cruise ships have redirected sailings from Israel, and reports have emerged of several hotels in Tel Aviv being temporarily shuttered.

Our View

  • Conflict and security outlook: Fighting in the Gaza strip is likely to persist for several weeks at the very least. Depending on the emergency cabinet’s approach, Gaza could suffer a major ground offensive. House-to-house fighting and urban combat will likely lead to very high casualty figures, and Hamas will seek to retaliate with missile strikes and infiltrative attacks if it maintains the capacity to do so.
  • Political outlook: The recently announced unified emergency government will help ease some of the concern of further political polarization and public anger in the immediate term. Once the conflict is settled and a short period of time has passed, FrontierView expects PM Netanyahu to come under immense pressure and questioning. Despite the ongoing “rally round the flag” effect, a large portion of Israelis lay blame on the Netanyahu-led government’s extremist policies. Looking into 2024 and early 2025, FrontierView expects elections to take place amid an increasingly polarized political environment. Which way the scales tip (left or right) will depend on the formation of the emergency cabinet, the death toll to both Palestinians and Israelis, and the manner in which captured prisoners are exchanged.
  • Economic outlook: Israel’s economy will shrink significantly in Q4 2023, remain muted into early 2024, and then likely see some growth into mid-2024 driven by an uptick in infrastructure investments, a gradual return of domestic consumer activity initially, and later tourism activity.
    • Exchange rate: The shekel has depreciated by around 12–15% against the US dollar and will likely remain slightly volatile and depreciate through late 2023. This follows on significant depreciation seen already in 2023 as a result of political instability and brings the NIS to a seven-year low. Suspension of gas production at the Tamar field may compel Israel to seek natural gas supplies on the international market, putting pressure on the import bill and pressuring the currency. 
    • Consumer spending: In the immediate term (two to three weeks from the start of the conflict), we expect to see severe disruption to consumer spending in Israel. This is particularly true for the hospitality sector, durable consumer goods, and other forms of out-of-home consumption. At around the four-week mark, we could see a resumption and reopening of some businesses and a modest and partial return of mobility, but not a full recovery to normal levels. The severity of the conflict will dictate how soon normalized mobility can resume. In addition, tourism inflows are likely to remain highly disrupted through most of 2024.
    • Public sector spending: Israel’s budget deficit has already widened considerably in 2023, raising the prospect that the country will have to raise debt to finance a long war. However, in 2023 and 2024, Israel will face new constraints from interest rates and exchange rate volatility. Government spending is likely to increase to meet the costs of war in Gaza. Israel’s last major military operation in Gaza in 2022 cost approximately NIS 200 million (US$ 51 million) per day.
    • Business activity: Overall investments will remain slightly dampened in Q4 2023 and Q1 2024, reflecting still-frail private confidence and a rechanneling of public spending from CAPEX to OPEX. No major downgrade of the investment outlook for 2024 is planned, so far. However, labour market disruptions will linger into Q2 2024. The 300,000 reservists called up this week amount to more than 7% of the country’s total labor force.

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