Shedding light on the effects of the genocide on the Israeli occupation's tech sector, which showed that a near majority of Israeli startups had investments canceled since the start of the war on Gaza amid increasing operations from Lebanon's Hezbollah, Globes cited a report by the Israeli Startup Nation Central (SNC) titled "One Year of Israeli Innovation in War."

The report highlights a stark divide in how different regions within occupied Palestine are coping, with the situation in the north being the most severe, as 49% of Israeli tech companies reported investment cancellations due to the war and only 31% are confident in raising funds in the coming year.

Nearly half (48%) foresee a drop in investment activity, while just 31% anticipate an increase. Moreover, there are stark regional disparities, with 69% of tech companies in the north deeply concerned about securing future investment and 40% considering moving their operations elsewhere.

Confidence in the government's ability to manage recovery efforts is worryingly low. Over 80% of Israeli companies and 74% of investors doubt the current administration's capacity to lead the sector's rehabilitation.

Funds raised by tech companies also staggered, dropping by 4% year-on-year. Similarly, merger and acquisition deals also dropped by $1 billion.

It is early-stage companies that are bearing the brunt of the economic slowdown, revealing an uneven recovery within the tech landscape as the Israeli occupation lives on the edge in light of threats from the Resistance to the north.

"Israeli tech has shown incredible resilience in the face of prolonged conflict and mounting challenges. But this resilience cannot be taken for granted," SNC's CEO Avi Hasson said, emphasizing the gravity of the situation.

He warned that the lack of long-term planning, particularly in budget policies and infrastructure, threatens to stall growth, urging the government to take decisive action. "The tech sector is essential for protecting the Israeli economy and benefiting all of its citizens."

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Hasson also pointed to a broader industry consensus that faith in the government's ability to support the tech sector is faltering. He added, "The current instability is causing many Israeli companies to reconsider their next steps to ensure their business growth."

Implications of protracting war

The Institute for National Security Studies (INSS) in "Israel" revealed in a recent research paper that "Israel" now stands at a crossroads regarding the ongoing war on Gaza and confrontations with the Axis of Resistance, detailing that "every decision about the future will undoubtedly have significant economic consequences, especially considering that the projected budget deficit for 2024 is expected to exceed the forecast underlying the current state budget significantly."

The paper explores the economic impacts of three scenarios: continuing the war on Gaza, escalating tensions on the northern front, or securing an agreement that includes a captive release deal.

The INSS report predicts that In light of the current situation, the Israeli economy is expected to record only 1% GDP growth in 2024. 

With "Israel’s" risk premium at 1.75%, continuing the war could worsen it due to rising security costs, increasing the deficit and debt-to-GDP ratio. This may lead to economic instability. That said, the INSS explains that continuing the current situation could worsen the risk premium due to rising security costs, increasing the deficit and debt-to-GDP ratio.

"Israel" may be perceived as economically unstable, reducing the appeal of its risk assets. For 2025, low growth is expected at around 1%, with ongoing high budget deficits to fund security, potentially raising the debt-to-GDP ratio to 75% and negatively impacting "Israel’s" credit rating.

The paper emphasizes the uncertainty surrounding how the next stage in confrontations will play out. However, even a scenario involving a month of intense confrontations in the north against Hezbollah alone—accompanied by unprecedented attacks on Israeli settlements—presents an extraordinary and highly challenging situation, it added.

In the scenario of an escalation in significant infrastructure damage, the Israeli economy could contract by up to 10% of GDP in 2024, the paper detailed.

The INSS report projects that the deficit could surge to approximately 15% to finance the war and meet essential needs, such as food, water supplies, transportation, and shelter. The contraction in GDP, combined with massive government spending, would lead to a debt-to-GDP ratio ranging between 80% and 85%.

The risk premium is expected to rise to 2.5% within a month of war, making fundraising more challenging, according to the paper.