The world changed on October 7, when Hamas militants launched a brutal and barbaric terrorist attack on Israeli civilians. In the weeks since, the world has witnessed Israel exercise its right to self-defense — a right that it unambiguously and inarguably possesses, as does every other nation. The savage Hamas attack and Israel’s response have dominated foreign affairs in the United States and Europe, and of course, in the Middle East, and have had major political ramifications. The way the coming weeks and months unfold will have substantial implications for the balance of power in the Middle East, for American politics, and perhaps even for global peace.
The aftermath of October 7 also has substantial implications for the Israeli economy and the global economy. Standing for free people requires standing for free markets. And prosperity is the bedrock on which lasting peace can be sustained.
Noach Hacker, minister of economic affairs at the Embassy of Israel, gave a speech at AEI last week in which he provided an overview of the impressive resilience of the Israeli economy in the aftermath of the attack. Hacker said:
Within this crisis, we also find the opportunity to strengthen our economic ties between Israel and our global friends. By doing so, we send a powerful message to the world that terrorism will not prevail. The economic resilience of nations facing these barbaric threats will only grow stronger. In the face of terrorism, it’s Israeli innovation that will emerge victorious. It’s our resourcefulness that will triumph. It’s our economic strength that will prevail. Within this crisis, we find the opportunity to unite. Together, with a combined power of the world’s moral economies, we will recover and overcome this barbaric terror. Let us stand together united in our resolve, as we face these challenges and seize the opportunities they present. The U.S. support of Israel at this time is another sign of our strong partnership. Make no mistake, Israel is strong and powerful, but we are stronger and more powerful together.
Hacker catalogued the damage: 1,400 murdered; 4,600 wounded; 30 communities destroyed. Israel evacuated and relocated 120,000 people following the attack, which caused substantial economic disruption. With 3,000 rockets hitting Israel each day, the nation canceled school for a week or two following October 7. The labor market was disrupted by all this, and also by the departure from their jobs of hundreds of thousands of Israelis who were called up to military service.
In the early days of the war, investors lost confidence in Israel, threatening the country’s long-term prosperity and its ability to execute militarily in the months to come. Fourteen days after the attack, Israel’s stock market was down 13 percent and its exchange rate against the dollar was down 6 percent.
Israel’s fiscal position deteriorated substantially as government revenue plunged — a result of disruption and tax holidays put in place to help business and households with cash flow — and government spending on defense and recovery increased.
Hacker made a compelling argument that Israel’s economy is already bouncing back. Investors are regaining confidence, and Israel’s equity market is recovering its losses.
The exchange rate has fully recovered its losses.
This rapid recovery, Hacker argued, is in keeping with Israel’s history of fast recoveries.
The minister argued that this was due in large part to Israel’s tech sector, which is relatively unaffected by military conflict.
All four of these graphs came from Hacker’s speech. Check out the video of the speech for a compelling presentation of the way Israel’s citizens are pulling together to support the economy. For example:
Everybody works together to the same purpose. So that also means we’re going to come out of this stronger than we were just a day before. Agriculture and farmers are swamped with volunteers. People in retirement and young people are going and picking tomatoes, strawberries.
I was also very impressed with the examples of innovation in Israel, including tents for Israeli reservists to work remotely while on active duty, defibrillator drones that can be sent to soldiers on the battlefield to save lives, and smart stretchers that can provide remote medical treatment and procedures to wounded soldiers.
What follows is an edited version of part of my conversation with Hacker.
Michael R. Strain: What do you think accounts for Israel’s impressive level of resilience? You know, this horrible savage attack happens, and that rocks life in Israel. It dampens earnings forecasts for sure. But it also keeps kids out of classrooms, communities destroyed, everybody knows somebody who was directly impacted, reservists are called up. Israelis from around the world come back home to Israel in an attempt to help. In addition to all of that, the private sector seems to mobilize.
Is there a culture in Israel that recognizes that sort of private sector mobilization as contributing to the broader national effort? And is that something that you think the community of investors should know more about?
Noach Hacker: We see the economic front as part of the war. We see our economic resilience as part of our strength, part of our nation’s strength.
The Israeli people are extraordinary people. And I think what the terrorists tried to do, by filming their horrors and sending them around the world, they thought they’re going to break our spirit. They thought they’re going to create this huge run from Israel, all the Jews are going to be scared and run away. They created the exact opposite. We are more united than we have ever been.
And it’s not only the army, it’s not only the soldiers and the reserves; it’s also the economy. I think people need to understand it’s in our nature. In Israel, we treat each other like family. You know, people call other people “my brother.” That’s the world in Israel. Everybody looks at everybody as family. And everybody’s trying to help everybody. It’s right in every aspect, especially the economy. Everybody tries to help. That’s why you see people running towards agriculture, and running to pick tomatoes and strawberries to help because they can, not taking any money. My wife volunteering in a hospital for two weeks, 14–15 hours a day, just to help. And I think that’s what happens in Israel. And that’s what’s going to happen to our economy. It’s in our nature.
Strain: I think you made a persuasive case that Israel already is bouncing back from the damage on October 7 and will continue to do so. Let me ask you directly about that. Let’s say that I am an investor and I’m looking to invest the dollar. And on October 6, I was very excited about putting that dollar in Israel, perhaps in the tech sector. Now I’m a little skittish, and I look to see that the stock market is regaining its footing, I look and see that exchange rates are normalized. But I’m still feeling a little skittish. What message do you want to give to that investor?
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Hacker: First of all, I think what I showed you today about innovation during war, and what’s going to happen to the Israeli high-tech sector, shows that that sector is going to get a huge boost. People are creative. I only showed a couple of examples. There are hundreds of examples of what’s happening now in Israel. Israeli innovation, when it faces a challenge, creates solutions that nobody ever thought of. And not only its solutions that are interesting and innovating; they’re business solutions, because that’s the way our country works. We see it . . . in many, many places. The army starts facing challenges. The high-tech sector stands behind the military, finding solutions for it. And those are business solutions. They’re not only solutions that’s going to help the army, now it’s going to help the economy later.
And I think what you’re going to see after this horrible, horrible, horrible war, you’re going to see a very big rise in Israeli high tech. And I think we’re starting to see it now.
Strain: I want to ask what more the United States can do from an economic perspective. One thing it can do is to look at the situation in Israel, look at the opportunities in Israel, and recognize that Israel has been extremely resilient in the face of this terrorist attack. Are there other things that the U.S., the private sector in the U.S., can do, that U.S. economic policy can do in order to support Israel at this time?
Hacker: I’ll begin my answer in saying, this is not a war between Israel and Hamas. We’re having now a war between the civilized world and the barbaric word, between good and evil. And I think this is the time that economies of the civilized world need to show the world that we’re strong together.
First of all, we’re very thankful for the U.S. help, with the military help that we’re getting. It’s truly unprecedented and truly important to us.
As you saw, we’re a strong economy. We have good opportunities for American companies. But what we’re looking for is changes that will show the world that we’re not only close friends, that we’re strong strategic partners. And there are examples of these kinds of strategic partnerships between the U.S. and other countries. I think this is a time to take the economic relationship between Israel and the U.S. one step forward, not only for Israel’s economy, but for the American economy, and for the whole world to see that civilized economies stick together and have a great future together. And we’re only going to come out of these kinds of terror attacks stronger than we were the day before.
Strain: You’re right to couch this as part of a broader, longer-term struggle. And the current conflict with Hamas is one chapter in that broader struggle. Will there need to be a rebuilding effort or reconstruction effort following the conclusion, or at least the mitigation of Israel’s military response? If so, what does that look like? How can the United States be helpful with that?
Hacker: I’ll discuss the Israeli side. Because of our high level of population growth, we’re in need of a lot of new infrastructure. We’re a new country, we’re a young country. We don’t have enough trains, enough roads, enough houses, enough hospitals. We’re in this huge building trend. And American companies that can come and take part are not engaging in an act of charity. They make a lot of money.
The need for infrastructure after this war will only grow. And we’re looking towards American companies. We believe in working with our partners, not only partners in defense, partners in moral values, partners that can actually benefit from this kind of project. And we’re hoping to see a lot of American companies come to Israel.
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