TEL AVIV – U.S. Treasury Secretary Scott Bessent and Israeli Finance Minister Bezalel Smotrich met last week for “a highly impactful meeting” aimed at enhancing economic relations between Washington and Jerusalem.
The two men “reaffirmed the strong and enduring commitment of both nations to a strategic economic partnership,” with discussions focusing on “the importance of deepening economic cooperation, fostering innovation, and strengthening financial and trade ties,” according to a Treasury Department statement.
“It was a great trip, we had a meaningful meeting with the secretary, who spoke about the strength of Israel’s economy, the backing of the U.S. toward Israel on both the military and economic levels, and the full pressure campaign on Iran,” Eytan Fuld, a spokesperson for Smotrich, told FOX Business.
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“It was very important for the secretary to meet Minister Smotrich early on in his role, just like President Trump met Prime Minister [Benjamin Netanyahu] right away to show the connection between Israel and America. It also shows that all doors are open for working together throughout the next few months and years on all economic issues,” he added.
The Jewish state’s economy has been battered and bruised in the wake of Hamas’ Oct. 7, 2023, massacre and the ensuing wars against Palestinian terrorists in the Gaza Strip and Hezbollah in Lebanon, yet has shown a remarkable resilience.
Israel’s gross domestic product grew at an annualized rate of 2.5% in the fourth quarter of 2024, according to the Central Bureau of Statistics, after expanding at 5.3% in the July-September period and following a contraction of 0.3% in the second quarter.
Overall, the economy grew by 1% in 2024 – surpassing the Bank of Israel’s (BoI) forecast of 0.6% – but down from 1.8% in 2023 and 6.3% in 2022, the year prior to Hamas’ terror invasion.
The Bank of Israel is predicting GDP growth of 4% in 2025.
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Other key indicators remain on solid ground, with Israel registering a 2.6% unemployment rate in January 2025, and annual inflation over the preceding 12-month period standing at 3.8%.
“Surprisingly enough, the war is not over yet but Israel came out quite well,” Dr. Alex Coman, a value creation expert at the Holon Institute of Technology in Israel, told FOX Business.
Even so, he noted that the economy took a major hit as hundreds of thousands of IDF reservists were plucked away from their jobs to go fight. The tourism industry effectively ground to a halt with most international airlines canceling flights in and out of the country, the agriculture industry was essentially paralyzed because foreign workers returned to their native countries, and major industrial companies in the south and north were forced to halt operations due to being in the line of fire.
“The input into the country’s coffers decreased because many businesses shut down and the government spent more for the war effort while collecting less,” explained Coman, noting that the government also spent huge sums on housing for tens of thousands of displaced people.
“The situation looked very dire, but Israel has had very large exits in cyber, in particular, and did very well with military industries because these companies are among the only ones in the world that proved themselves under intensive fire, resulting in sales to countries concerned with being invaded by Russia or China,” added Coman.
Nevertheless, there are challenges ahead, perhaps foremost paying for the reconstruction of southern and northern Israel, which were decimated during the wars against Hamas and Hezbollah, respectively. Jerusalem has allocated a combined $9.35 billion for rebuilding, funds for which have been included in the state budget that its parliament must pass by the end of March or the government will by law disband.
Authorities also raised the Value Added Tax on goods and services by 1% on Jan. 1 to help pay for the wars, while prices have risen by an average of 4-6% since Oct. 7, 2023.
As a result, Coman warned of a potential “brain drain.” “Because salaries in Israel are low and expenses high, tech nomads find it easy to go work in the U.S., Europe or even Thailand, where they are very welcome because they are very competent,” he said.
Esteban Klor, professor of economics at the Hebrew University of Jerusalem and a senior researcher at the Tel Aviv-based Institute for National Security Studies, told FOX Business that a financial recovery will largely depend on developments in the war against Hamas.
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“We will start seeing a recovery if the intensity of the fighting decreases and it will be more substantial once there is a solution to the Gaza Strip and stability to the region,” he said.
“The picture is pretty bleak, but the good news is that the economy didn’t collapse, like we saw with Russia or Ukraine. But it isn’t growing and that’s a sign we need to think about this more,” added Klor.
Leading Israeli analysts emphasized that the meeting between Bessent and Smotrich had implications that extend far beyond economics, marking a dramatic policy shift from the Biden administration.
The previous U.S. government had unofficially boycotted the Israeli minister and even considered sanctioning him due to his belief in the Jewish people’s historical rights to Judea and Samaria – commonly known as the West Bank – and his support of hardline policies geared toward fully defeating Hamas in Gaza, whose Palestinian inhabitants he repeatedly referred to as modern-day Nazis due to their overwhelming support for Oct. 7.
Notably, Smotrich holds the post of minister in the Israeli Defense Ministry, tasked by Netanyahu with overseeing the Civil Administration, the body responsible for approving construction and handling other bureaucratic matters in Area C of Judea and Samaria, or the West Bank.
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