Tel Aviv’s benchmark index rose 52% in 2025, and mergers and acquisitions in Israel reached roughly $82 billion, even as the war entering its third year inflicted deep macroeconomic and social costs across the country. The International Monetary Fund projects Israel's economic growth in 2026 will outpace every G7 economy, despite placing the nation’s current output roughly 9% below its prewar trajectory.

Foreign capital has continued to flow into Israel, and the technology sector has grown throughout the nearly three-year conflict. Major deals included Google’s purchase of cybersecurity startup Wiz and Palo Alto Networks’ acquisition of identity security company CyberArk. The high-tech sector, which employs approximately one in nine Israeli workers, earns most of its revenue from customers abroad and pays wages close to three times the national average. Tel Aviv’s 52% stock market return far exceeded the S&P 500’s gain, which was approximately one-third as large in 2025.

Despite the tech-driven boom, broad segments of the population face worsening financial stress. About half of Israel’s self-employed report earning less than they did before the war, according to a survey by the Israel Democracy Institute. A third of Israeli households spend more than they earn, and many are in chronic overdraft at rates approaching 13%. Prices in Israel run further ahead of incomes than in any other developed economy among the member states of the Organization for Economic Co-operation and Development.

The Bank of Israel estimates the first two years of the war cost 177 billion shekels, or more than $57 billion, in lost output. Civilian hardship has mounted alongside these macroeconomic losses. In June, a missile hit a vineyard near Bat Shlomo in northern Israel after the Israeli army calculated it would fall on open ground and assigned interceptors to other locations. The government’s damage assessment covered only a fraction of the losses, and the vineyard owner is now paying to test the soil for contamination.

Individual stories reflect the broader strain. Adi Degani served on active military duty for over 400 days during the war, after which his business went into debt. He took a bank loan to stay afloat and now works in construction. Meanwhile, banks in Israel posted record profits during the war even as households struggled.

The mental health toll is extensive. The State Comptroller of Israel estimates three million out of 10 million Israelis suffer from symptoms of trauma, anxiety, or depression. For a second straight year, more Israelis have left the country than have come home, according to the Central Bureau of Statistics.

Why It Matters

Israel’s economic divergence—record tech investment and stock returns alongside widespread civilian distress—highlights how wartime conditions can amplify inequality and sectoral imbalances. The U.S. has supported Israel’s war effort by financing weapons, replenishing interceptors, and reinforcing air defenses, enabling continued military operations while the domestic economy contends with the war’s dual legacy of growth in globally integrated sectors and contraction in locally dependent livelihoods.