After the Missiles: Can Israel’s Economy Find Its Footing?
With damage costs soaring and the deficit widening, Israel faces a complex path to recovery shaped by both hardship and innovation
[Tamra, Israel] Khir Diab, who built a premium Arab confectionery business over 30 years in Tamra, a city in northern Israel, faced devastation when an Iranian ballistic missile struck his town, severely damaging his bakery, killing four women from one family, and forcing local businesses to close.
Diab, who produces traditional baklava, knafeh, and other handmade sweets, suddenly found himself unable to pay his bills after years of economic hardship, from the COVID‑19 pandemic to the October 7 Hamas massacre and nearly 21 months of war. With mainstream banks unlikely to lend and government compensation too slow, he turned to Ogen, Israel’s nonprofit social lender, for a NIS 250,000 loan. The organization approved his request and paired him with a mentor, a senior volunteer executive who will work alongside him for 18 months to plan finances and rebuild the business.
Diab represents a wave of small business owners and individuals severely affected by the conflict with Iran, people at risk of being overlooked, even as the government rolls out relief efforts. The sudden hostilities cost Israel an estimated NIS 20 billion, money not provided for in the 2025 state budget, and will likely increase the national deficit.
“Israel used an incredible number of missiles to protect the country,” said Professor Avi Weiss, president of the Taub Center for Social Policy Studies in Israel. He added that the government now needs to allocate funds to compensate affected individuals and businesses. “We’ll need to find where to take that money from,” Weiss told The Media Line.
A larger deficit could damage Israel’s international credit rating, increase borrowing costs, and limit funding for essential public services, including health care, education, and infrastructure. It might also lead to higher taxes, affecting the most vulnerable, Weiss warned.
The Taub Center’s report shows that nearly 11,000 people were displaced—some permanently—as more than 35 buildings were destroyed. About 38,700 compensation claims were filed. Major public facilities hit include Soroka Medical Center in Beersheba, the Bazan Oil Refineries plant in Haifa Bay, and the Weizmann Institute of Science. Damage to homes and infrastructure is estimated at approximately NIS 7 billion.
On the same topic, the Israel Tax Authority told the Knesset Finance Committee that the war caused roughly NIS 5 billion in damage, nearly twice the cost of the October 7 Hamas attack, based on initial data. About 25,000 claims were filed in Tel Aviv, 10,800 in Ashkelon, 2,600 in Haifa and Acre, and 94 in Jerusalem. Consumer spending dropped sharply; credit card use fell 27% during the first week, indicating a sudden economic slowdown.
This holiday season, give to:
Truth and understanding
The Media Line's intrepid correspondents are in Israel, Gaza, Lebanon, Syria and Pakistan providing first-person reporting.
They all said they cover it.
We see it.
We report with just one agenda: the truth.
In response, the Finance Ministry introduced a compensation plan. Businesses with annual revenues of up to NIS 300,000 qualify for a fixed grant. Larger companies with revenues of up to NIS 400 million can receive reimbursement of 7% to 22% of their operational expenses, plus up to 75% reimbursement of salary costs. Employees placed on unpaid leave due to halted business activity are eligible for payments from the National Insurance Institute.
Still, not everyone believes these measures are enough. Eldan Kaye, vice president for development and partnerships at Ogen, warned that many people fall through the cracks due to insufficient funds or bureaucratic delays. “There are areas that are completely just overlooked,” Kaye told The Media Line, adding that many who qualify still face frustrating delays and complications.
Ogen responded by launching “Israel’s Financial First Responders,” a program offering NIS 210 million in loan capital, financial guidance, and planning support. Small businesses can apply for loans up to NIS 650,000 at prime + 1% over five years, flexible credit lines up to NIS 200,000 at prime + 2%, and interest‑free loans up to NIS 100,000 through SparkIL, a joint program with The Jewish Agency for Israel. Families can apply for interest‑free household loans of up to NIS 50,000 from a NIS 15 million fund if they’ve suffered income loss or property damage since October 7, 2023.
Civil society in Israel—the nonprofit sector—has really stepped up … often bridging components that the government … is never getting involved in or initiating
Kaye emphasized that Ogen’s five-year loans carry no interest—only a small setup fee—and borrowers are free to repay the loan early. “Civil society in Israel—the nonprofit sector—has really stepped up … often bridging components that the government … is never getting involved in or initiating,” he said. Ogen expects to aid up to 14,000 families and small businesses, counsel 1,000 households, and mentor roughly 200 businesses.
We’ve seen that … more and more families … dropping into poverty
According to Kaye, Israelis have endured prolonged hardship, from COVID‑19 in 2020 to the October 7 Hamas massacre in 2023. “When you think of specific sectors such as food and restaurants, small contractors, and the tourism industry—these are major, major sectors that have been affected,” he said. “We’ve seen that … more and more families … dropping into poverty. This 12‑day war … will have a huge impact.”
Despite the turmoil, early data hints that Israel’s broader economy may already be recovering. High‑tech exports rose to at least 54% of total exports, the Tel Aviv Stock Exchange gained value, and the shekel strengthened during the conflict, Weiss noted.
The 2025 Global Startup Ecosystem Report ranked Tel Aviv the fourth‑strongest startup ecosystem globally. The report measures ecosystem value—exits and valuations—which Mayor Ron Huldai credited to “the deep foundations of our innovation ecosystem.” He praised local entrepreneurs in the fields of artificial intelligence, cybersecurity, and life sciences, highlighting their “agility, creativity, and ambition.” He added, “In the face of complex challenges, Tel Aviv remains an open, welcoming, and resilient city… driven … by liberalism, creativity, and entrepreneurship.”
Startup Nation Central reported that private tech funding in the first half of 2025 reached $9.3 billion—up 54% from the second half of 2024. While the deal count dropped from 214 in Q1 to 151 in Q2, funding increased from $3.3 billion to $6 billion. Funding rounds over $50 million rose from 20 to 32; early‑stage funding rose 50%, reaching $607 million; Series B and C funding increased 60%; and merger and acquisition activity hit $39.2 billion. Foreign investors participated in 69% of funding rounds, up from 61%.
“This is clear evidence that entrepreneurs are still building and investors still remain confident,” said Avi Hasson, CEO of Startup Nation Central. He cited the strong shekel, positive market trends, and global strategic investments as signs of Israel’s economic potential.
It seems like in 2026 we should basically return to normal
Weiss expressed cautious optimism for 2026. “It seems like in 2026 we should basically return to normal,” he said, noting that recovery depends on government investments in growth sectors, education, labor participation, and infrastructure. “If the government puts money into these things, the country can expect rapid growth.” He concluded that Israel historically rebounds quickly from conflict and expects no different outcome this time.
