Israel’s Economic Resilience: Sustaining Growth While Fighting on Seven Fronts Transcript

Disclaimer: This transcript is an edited version version of a transcript created using AI technology and may not reflect 100% accuracy.

The video can be found here.

Sarah: Good afternoon. Today was an extremely difficult day for the State of Israel, for the Jewish people, and for anybody with a drop of humanity. Today, the bodies of Shiri Bibas, four-year-old Ariel, and nine-month-old Kfir were laid to rest in Kibbutz Nir Oz. Let us begin by just taking a moment of silence in memory of these precious lives.

It has been almost 17 months since Israel was attacked on October 7th, and since the Jewish state was thrust into a war on multiple fronts. We have many questions about the impact of the war on Israel’s economy. How has the war affected the tourism sector, the agricultural sector and commerce in general? Many young men and women have been called into the reserves. How has that impacted Israel’s economy? Here to answer these questions and more, is Minister Noach Hacker. Minister Hacker leads the economic mission for the Ministry of Finance at the Israeli Embassy in the United States. Minister Hacker was born in Jerusalem. He received his BA in social sciences and economics from Bar-Ilan University and his MA in social sciences specializing in international economic influence from the University of Haifa. He is also a graduate of the very prestigious Israeli National Defense College. Over the past five years, Minister Noach Hacker has served as board member and vice president to one of the largest telecommunications companies in Israel. Before that, Noach held various positions at the Ministry of Finance, including Deputy Director of the Budget Department. It is indeed a terrific honor and privilege to be able to welcome you here, Minister Hacker. Please, tell us how Israel has managed to fight a seven-front war from an economic perspective? What is the health of Israel’s economy today?

Noach Hacker: Thank you very much Sarah and thank you for the warm wishes. Today is a particularly hard day in the sea of hard days we have experienced over the past 16 months. Many people analyze and discuss the war and its impact on Israeli society, but fewer focus on the economic war Israel has been fighting at the same time. I visited the Bibas family home in New Orleans a couple of times. There, I spoke to members of the family and heard their stories. Some of them have remained in New Orleans since the attack. Some, who survived the horrible attack of October 7^th, are looking forward and are able to smile and laugh again. I think that type of resilience extends to the Israeli economy as well. Israel is not a big country and we all know each other. We are all brothers, sisters or friends. So, the magnitude of the destruction of October 7^th, had a huge effect on Israel as a whole and this includes its economy.

On October 7^th, thousands of rockets were fired into Israeli cities. This was the start of a great impact on the Israeli economy. On that Saturday morning, hundreds of thousands of people were called into reserves. On the Sunday after that, schools were closed because of the missiles. For the first months of war, children stayed at home and could not go to school. One of their parents was in the reserves, and the other one had to stay at home with them. The first months of the war, until the schools reopened, was the period during which we experienced the worst impact on the economy.

Since the low point at the end of 2023, I think we have seen an amazing recovery. We see this in every place we look. The job market is strong and everybody has gone back to work. The unemployment rate in Israel is at 2.6%, a historic low. Our stock markets fell almost immediately after October 7^th. Since January 2024, the Israeli stock market has risen by more than 50%. I think nobody would have believed it would happen if we had predicted it. Israel’s risk premiums jumped immediately after October 7th but we have recently seen them coming back to where they were before and the same is true for government yields.

We are still facing many challenges with respect to our economy. Israel’s economy was supposed to grow by about 3% in 2023. It grew by only 2% because of the impact of October 7^th. In 2024, a year of multi-front war, Israel still managed to finish the year with 1% positive growth in its economy. We have many kids, we are growing very fast, and we were hoping to grow our economy by 3 or 3.5% last year. That said, I think positive growth in a year like 2024, says a lot about the strength of our economy. In the last quarter of 2024, we grew by around 2.5% and that is encouraging.

We see growth all around us in Israel. We are starting to see communities coming back even though we still have many challenges. The challenges are mostly in the North but we are starting to see a path there as well. The market is strong, credit card purchases are higher than they were, and we are starting to see the market bounce back. All of this has to do a lot to do with the nature of the Israeli people. At the beginning of the war, we set up work tents for reservists. It was amazing to witness people on reserve bases returning from guard duty, opening their computers, connecting to their high-tech companies in Tel Aviv and talking to their clients around the world. They did this from bases in the middle of nowhere. My second son learns math through a program offered by an Israeli university. I saw him learning on Zoom with his Israeli teacher and then I saw a tank passing behind the teacher. My son explained to me that his teacher is in the reserves and is teaching from a battlefield. I think that illustrates our nature. We never stop and we never give up and that attitude translates to our economy.

Our high-tech sector creates opportunities for innovation and allows us to deal with very complex situations. We resolve problems using technology whenever we can. I think countries around the world are starting to notice it and that is why we have seen a lot of new investment in Israeli high-tech over the past year, even though we are at war. Western countries, including the United States, face many of the same difficulties and challenges as we do. During the war, Israel developed cutting edge solutions in many areas, including cyber, drones and tunnels and people are starting to realize they will need Israeli innovation to help resolve global issues and protect their own countries.

So, last year, we had a very tough year, but I think we have many new opportunities and they are reflected in our economic data. It is also important to understand Israeli stability. Jewish people have been facing challenges for many years. As you mentioned, I worked in the budget department in Israel’s Ministry of Finance. We always prepare for the worst there and that is why we maintain a very responsible fiscal policy. This is true even though it is difficult to cut programs and hold back on tax cuts and other things.

Over the past 20 or 30 years, we have made sure to keep our debt to GDP rate ratio very low. This helped us during COVID and also during the war. We began the war with a debt to GDP ratio of 60%. Our war expenses were around 200 billion shekels which are huge and unprecedented in Israeli history. Even with those expenses, our debt to GDP ratio remains lower than 70%, relatively low as compared to other countries. There is another figure I want to point to that I am sure you will not believe. In January, government income exceeded government expenses. We had a surplus of about 25 billion shekels in January. This is not a small surplus. So, we are starting to see things coming back to where we want them to be, a very stable financial place.

I will also mention that we have experienced other issues that impacted our economy during this war. We have issues of countries boycotting Israel and of terrorist organizations trying to block trade routes to Israel in the Red Sea. Given all of those challenges, we are still presenting the positive economic outlook I discussed and I think that sends a very important message to the world. We are strong and we are stable and we are not giving up.

Sarah: Which sectors do you think have been most badly impacted economically? I know many people from the North have been reluctant to return. Has this impacted agriculture and tourism?

Hacker: If we examine the impact of the war on each sector in isolation, I think it is safe to say tourism was probably the hardest hit. For many months, there was only one company flying to Israel. So even if people wanted to tour Israel, it was difficult to get there. Now we are seeing other companies flying to Israel again. The impact of the war on the tourism industry was huge even though the tourism sector is not a huge sector of the Israeli economy and so the overall impact on the economy was not that big. We did see some level of balance restored in the tourist sector, because people could not leave Israel and they traveled internally. We also had to evacuate our northern communities to the center of Israel. The hotels were empty because of the tourism crisis and so most of the communities from the North, were placed in hotels. That meant the hotels were full during a time without tourism.

The challenges we are facing in the agricultural sector, stem largely from the fact that foreign workers are not coming to Israel as much as they did before the war. I think the construction sector was severely impacted. Before the war, construction was highly dependent on Palestinian workers. After October 7^th, Israel halted the influx of Palestinian workers for security reasons. I think that impacted the construction sector significantly and we are feeling it now. The issue has not been resolved.

I do not know what the solution will be but we are trying to figure out alternatives. We are considering bringing in foreign workers from other countries. We are in negotiations with a lot of different countries right now. We have signed agreements with India and others to bring in foreign workers for construction. We are also trying to use technology and innovation to resolve the issue to the extent possible and we are trying to incentivize Israeli workers to come and work in construction and in agriculture. So those are alternatives but the issue is not resolved yet even though we are seeing some new projects and building starts.

Sarah: What are the key priorities for the US-Israel economic relationship in the coming year?

Hacker: We have demonstrated our economic resilience, but we want growth and prosperity. Everyone is talking about the US leadership, and the fact that Israel is part of it. One of the most unique things about the economic relationship between Israel and the US is that we are not competitors. The EU is a huge economic base that competes on the global stage. Israel, on the other hand, is a small economy focused mostly on technology and innovation. We cooperate with the US in the private sector and we see many US companies buying Israeli startups or establishing their innovation hubs in Israel. Through our cooperation, we can work together to improve our joint operations. We can work with the world’s biggest and strongest economy to drive us both forward, I think that is what we want to focus on.

Over the past few years, we have seen disturbances in our relationship, but we truly hope and believe that it is in the interest of both of our countries to move forward collaboratively. I think the combination of Israeli innovation, flexibility and drive and US force, can achieve great things.

Sarah: What trends are we seeing in direct US foreign investments in Israel, especially in high tech?

Hacker: Many years ago, let’s say around 2016, the US did not play that big of a part in foreign direct investments in Israel. Others played a bigger role than the US at that time. By 2023, 75% of foreign direct investments in Israel were American investments. 75% is an amazing number and it did not happen by mistake. Of course it was driven by the private sector, but we also tried to make it happen at the government level. Encouraging direct US investment, it is an important priority for us because we believe it helps maintain strong economic ties with our biggest partner. We should ensure that American investors who wish to invest in Israel for economic reasons are not incentivized to invest elsewhere. I think that is a challenge, but the trend is very clear.

Over the past two or three years, we have seen America playing a bigger and bigger role in the Israeli economy. Over the past year, around 70% of the mergers and acquisitions in Israeli high tech were American companies purchasing Israeli companies. This not only illustrates the close relationships between the two countries, but also the value that US companies derive from working with Israeli startups and other Israeli companies. I want to reiterate that we are not competing with American companies. Huge American companies buy Israeli startups to obtain the Israeli technology that helps them compete around the world. I think that is an important point. It translates to new jobs in America and to benefits for both American and Israeli investors. So, I think we are seeing positive trends in that area and we have to continue cultivating it and not taking it for granted.

Sarah: Are you anticipating that US protectionist policies, like tariffs, will have an impact on Israeli trade relations with the US?

Hacker: There has been a lot of discussion on that issue. I can just tell you that we have a free trade agreement with the US. I think the first free trade agreement that the US signed is with Israel. There are no tariffs imposed on almost all products coming into Israel from America. So, I do not think we are the focus of the administration’s new policies in this regard. That said, the more connected countries are, the more influenced they are by each-others’ actions. So, our deep connections with the US, especially in high tech, makes us vulnerable to the impacts of changes in US policy. The US, as a country, is our biggest trading partner. That is something we are looking at and I do not know what decisions we will make in that regard. The Israeli market is small with about 10 million people. Europe, on the other hand, includes hundreds of millions of people. Europe has its own market while Israel’s economy relies on the world market. We have some demand in Israel, but a lot of demand overseas and we hope this demand will not be disrupted in the future.

Sarah: We have received some excellent questions in the chat. Many Americans, both Jews and non-Jews, want to help the Israeli economy. We want to donate and to invest. Should there be more outreach and guidance as to how Americans can best help the Israeli economy?

Hacker: If you are telling me that you feel that we are not doing enough outreach, then that is a take-away for me. Israel is a young country. We started with almost no infrastructure at all. We have built many buildings since then but our population has also grown very fast. In 30 or 40 years, we will have to build another Israel in Israel. Houses, hospitals and roads are being built by the government and by the private sector. I want people to invest in Israel because it is a good investment and it is very profitable. Our profitability is reflected in the incredible growth in our stock market prices.

There are forces actively trying to destroy the Israeli economy. As an example, there are very organized groups working to dissuade universities from investing in Israel. Divestment by a single university will not disrupt our economy but we do not want to see a trend building in that direction. We do not want investors to consider Israel a country in which they do not want to invest. Given this, every investment in Israel is critically important and will very likely be a good economic decision as well.

Investment in Israel is very important as is Israeli and American cooperation in high tech, and in other projects in Israel, People can invest in Israel bonds and in other bonds issued by the Israeli government from time to time. There are many good, profitable investment opportunities to take advantage of in Israel.

With respect to donations, I can send you several different avenues after this webinar. Where to donate is a very personal decision based on the priorities of the person donating. Every person has different priorities in this regard. When the war started, we received requests from people who wanted to help and we directed many of them to municipalities in the South and in the North. Rebuilding those communities there is going to require extensive funding. Yesterday, I spoke with the director of the new rebuilding initiative in Israel. He told me that they are thinking about including communities from around the world in rebuilding Israel’s South and North.

Sarah: There has been tremendous cooperation between the United States and the Israeli army. I understand Israel is actually leading in the development of certain weapons. How much investment do you think American and other armies make in weapons manufacturing in Israel? How important are those investments to Israel’s economy?

Hacker: I can tell you that our defense industries are highly connected to each other. Israeli weapons manufacturers all have a presence here in the United States and you know some of them. I visited IAI a couple weeks ago. It is an Israeli government company here in the US. IAI employs hundreds of American workers and conducts joint strategic projects with the US. They are currently discussing laser abilities to fight off missiles.

We heard the president talking about David’s Sling here in the US. We also witnessed the huge achievements of the defense missile systems in Israel after being attacked with very strong and significant missiles. We were attacked from multiple fronts, including Iran, and we remained virtually unharmed. I think that is unbelievable. I am a religious man and I think it was a miracle. I think the whole world saw it.

As I said, in the future, other countries are going to face the challenge that we are facing now. Some are facing them already. In addition to missiles and things like that, we defend ourselves against cyber-attacks. The US will be subjected to similar attacks in the near future if not already. The ability to prevent such attacks is as essential as preventing missile attacks. I think cooperation between Israel and the US is very strong in this regard. We have a very deep cooperation between our defense industries and I believe it will only get stronger given what we have learnt during the war.

Sarah: So how is your trade with Europe affected by political concerns?

Hacker: We have to recognize that political concerns are impacting our trade with other countries. It is not just our trade with European countries that is being impacted. I do not want to say too much, but we are seeing politics impacting trade relations. We are seeing things in this war that we have not seen before. I am not referring only to Turkey deciding to boycott Israel completely. I am talking about some other European countries as well. We do have concerns in this regard. We are also concerned that countries may decide to postpone trade relations for a few years to wait and see what happens in Israel. What we have seen in this regard so far has not been very significant and has not affected the Israeli economy, but we do have concerns in that arena.

On the other hand, there are many opportunities available for us because people do want economic cooperation with Israel. So, when one country divests, others invest. A good example is that of Turkey. Turkey decided to boycott Israel completely. Before the boycott, Israel was highly reliant on certain goods from Turkey in some areas. In construction, 50-60% of some products in Israel were imported from Turkey. Within days, the products were replaced, the prices did not rise and the government did not intervene. Obviously, this was a competitive field and so we did not experience any negative impacts in this case. That said, boycotts are an issue we are examining and we are seeing things we have never seen before. We understand who our true partners are and that is part of the reason why we are so focused on the US, a very good and very reliable partner.

Sarah: What is your trade situation with countries like China, for example?

Hacker: That is a difficult question to answer. In 2016, about 30% of foreign direct investments in Israel were from China. In 2023, it was fractions of 1%, almost zero and that is a very big change. We do import industrial goods from China which are not high-tech, but the big change is in investments and there are many reasons for it.

Sarah: India is another very populous country. What is the investment situation between India and Israel?

Hacker: Our delegations from Israel’s Ministry of Finance and the Economic Ministry of Israel have just returned from India. We are working very hard to improve our economic relations with them and I think India is going to be a very big driver of trade in the next couple of years. We already have economic relations with them but we are working to expand them and make them more significant. We are completing trade deals, investment agreements, and many other things with India. The land corridor between India and Europe is supposed to go through Israel. This will change Israel and the entire region. The Houthis, one of Iran’s proxies, tried to harm our economy by blocking the sea route to Israel. Instead, they succeeded in promoting the land corridor between India and Europe.

We are also seeing a significant increase in trade through the Jordan River Crossing. This trade is with countries you would not have expected to increase trade with Israel during a year of war. Trade with every Abraham Accord country went up instead of down last year. That is very significant and sends a very strong message to the world that the agreements are very reliable and very strong. I hope we will continue to expand those agreements with other countries as well.

Sarah: International ratings agencies have downgraded Israel a bit. What will it take to get them to upgrade Israel’s status again?

Hacker: I do not want to judge the ratings companies, but you heard the economic data. Israel is a fiscally responsible country, different from many others. We are a country that has experienced two years of positive growth. We have foreign currency reserves which are amongst the highest in the world. We have four times our external debt in foreign currency reserves providing the assurance that we have the money to pay our external debt. We are stable and very strong. Our economy is coming back and our government is taking decisions to maintain our very responsible fiscal policy.

We heard the ceasefire in Gaza was considered to have a positive effect on our rating, but we have not yet seen any upgrades. I am not sure this reflects the reality of our economy. The data, private sector confidence and investment levels are all very positive indicators for our economy. In a year of three or four downgrades, we are finishing with a very good year in investments and in high tech in particular.

A week ago, the government released bonds of about $5 billion here in the US. We have demand for more than $20 billion and we are seeing risk premiums coming down. Our stock market rose 50% in the last year and this indicates market confidence in our economy. I do not really understand the decision not to upgrade Israel again, but if the market is showing confidence, then it is a good sign for us.

Sarah: One popular columnist, whose name I do not want to mention, has said investors are very perplexed by the amount of red tape involved in investing in Israel and it has prevented them from entering the market. Is there a way that Israel can relax some of these regulations to allow for more foreign investment?

Hacker: I would love to hear more details about that. The one thing I like most is to fight bureaucracy. As you mentioned, I spent time in the private sector. I do get where the question is coming from and one of our objectives is to make investing in Israel as easy as possible. Please refer these prospective investors to me or my team, and we will try to address their specific issues. I know we have a lot of banking regulations, but if there is something specific that I can deal with, I promise to try and deal with it personally.

Sarah: Beautiful. Okay. What sectors do you see leading Israel’s economic recovery in the coming years?

Hacker: War is a negative thing, but it does create opportunities. As such, I think the defense industry will probably be a big driver for the economy in the coming years. This is because of all the innovation going on there. I have an interesting story to tell in that regard. The chief of medicine of the IDF came to speak with us to describe to us what is going on in the war. This has been a war with incredible results on the medical front. He told us that it takes 60 minutes from when a soldier is injured in Gaza, until he is on the operating table in a hospital in Israel and they have been getting great results. He explained to us how they have managed to achieve those results. He told us that he put GoPro cameras on his teams on the field to understand the process and make it better. One of his reservists is actually a bass player for an Israeli rock band but his day job is in high-tech. He asked why they were transferring papers from the medic to the doctor on the helicopter. He was told they were not able to create a digital solution for that. He and his friend took a week and created a solution to digitize the entire process.

So Israeli innovation comes about because reservists who invent high-tech solutions in their day jobs, use their skills to meet the challenges of the IDF and of war. They are able to create interesting and very, very smart solutions. I think that is what is going to drive our economy going forward, both in the defense sector and in the other tech sectors. I think we are starting to see an innovation explosion in Israel right now.

Sarah: Who do you see as your five largest trading partners today?

Hacker: Well, the United States is the first. I do not remember which European countries come next, but it is mostly European countries. I can send the list to you.

Sarah: Thank you. So, in general, you see this war as having presented incredible challenges, but it has also demonstrated the resilience of the Israeli people and the Israeli economy. What kind of message would you like to share with US businesses and investors about the resilience of the Israeli people and the future growth potential of investments in Israel?

Hacker: Israelis view every challenge as an opportunity. That is part of our nature. Over the past decades, Israel has come out stronger after every challenge. We had 15% growth in the two years following COVID. We have fought a number of wars over the past 20 or 30 years. After each one, we came out with higher positive growth than we had anticipated even before the war. I think that is what we’re starting to see now. Of course, this war has been harder on Israel than most other wars. The cost has been great and it is a multi-front war but it still presents great opportunities. I think we have shown that when you invest in Israel, you get results. I think that is something that people may not be fully aware of. Those that do understand it, are probably benefiting from it now. People that invested in stock markets in Israel a year ago, are now seeing a 50% yield. At that time, most people probably thought it crazy to invest in a Middle East country involved in a multi-front war.

I am not an investment advisor, but I think Israel has proven itself to be a good investment. October 7^th has taught us some important lessons, both good and bad. We started this webinar with a moment of silence for the bad that has happened since October 7^th. We need to recognize that the bad is bad and the good is good. As part of the good side of things, I think we have a duty to remain strong together. That means we should take advantage of the economic opportunities available in Israel because investments can really make a difference. Together, we can show the world that the good will always defeat the bad, not only in the battlefield but in the economic field as well. That is my message.

Sarah: That is a beautiful and uplifting message on a very sad day. We have put directions on how to get the economic newsletter, on the chat. It is something very important that everyone should know. I would like to thank you all so much.

I would like to say a word about EMET. Unfortunately, we are living in a world rife with misinformation and inaccurate facts about Israel and the Middle East. Our members of Congress depend on EMET to dispel the myths and provide reliable and factually correct information about the region. We are on Capitol Hill almost every day, providing critical analyses to inform policy decisions on Israel and the Middle East. So please support us and please do your best to support the State of Israel. Thank you very much, Minister Hacker.

Hacker: Thank you very much.

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