The long Gaza war and the short war with Iran are straining Israel's economy and hitting the tech sector. Ahmad Abdel-Rahman writes.

As the war in Gaza escalates, with no signs of a ceasefire, Israel is bracing for further economic and commercial pressure.

Repeated call-ups of reserves over nearly two years of fighting have disrupted the business environment. Nimrod Vax, co-founder of BigID, a data intelligence company, says that 20 percent of his company's 600 employees—a quarter of whom work in Israel—have served in the military at one time, significantly impacting long-term projects and vital research and development.

An estimated 130,000 reservists will be called up for the latest military campaign in Gaza. This is equivalent to 3 percent of Israel's workforce, according to a Bloomberg report.

Israel's USD 580 billion economy is experiencing its worst slowdown in more than two decades (excluding the COVID-19 pandemic). GDP remains below its pre-war levels after adjusting for inflation, the fiscal deficit has widened, and the government has been forced to borrow record amounts from local and international bond markets to finance the fighting.

Bloomberg Economics estimates that the Israeli economy is 7 percent smaller than it would have been without the war, a blow on a par with the scale of the global financial crisis.

Meanwhile, investor concerns are growing about the war's duration and its repercussions, amid the threat of sanctions and the stock market's slump. Exporters, particularly in the technology sector, also fear growing international isolation as global outrage over the images of devastation in Gaza mounts.

Small and medium-sized enterprises, which employ approximately 60 percent of the workforce, are the hardest hit by the severe labour shortage, with the absence of even a few employees threatening their very existence. Israeli Social Security data indicates that 5 percent of self-employed business owners called up for reserve duty for more than 30 days were forced to close their businesses by the end of last year.

In the same context, Israel's Central Bureau of Statistics announced a few days ago that the Israeli economy contracted during the second quarter of 2025, as the country's 12-day war with Iran forced a complete shutdown of many businesses.

The Central Bureau of Statistics said that gross domestic product (GDP) declined by a seasonally adjusted 3.5 percent year-on-year, according to Bloomberg News. In a Bloomberg poll of six economists, the performance fell short of analysts' median forecast of 0.2 percent growth. 

Israel launched a surprise attack on Iran on June 13 in an attempt to destroy the country's nuclear programme and other military facilities, which it said had become an "existential threat." Iran responded with ballistic missile attacks that sent many Israelis seeking shelter.

The Central Bureau of Statistics stated that the war with Iran had the greatest impact on private consumer spending in Israel which declined by 4.1 percent, and on gross fixed capital formation, which declined by 12.3 percent.

JPMorgan lowered its forecast for Israel's GDP growth in 2025 from 3.2 percent to 2 percent. The bank also raised its estimate for Israel's budget deficit from approximately 5 percent to 6.2 percent.

The bank noted that the shock of the Gaza war would lead to higher inflation in Israel and delay the monetary easing cycle, with the first interest rate cut expected to occur in November instead of September.