Israel’s economy shrank by nearly 20 per cent in the last three months of 2023, according to official figures.
The country’s gross domestic product (GDP) — a measure of its economic health – was “directly affected” by the October 7 massacre and subsequent conflict in Gaza, the Central Bureau of Statistics said.
Analysts predicted a contraction of around 10 per cent as a consequence of the war with Hamas, which took a toll on consumer spending, trade and investment, but preliminary figures showed a 19.4 per cent drop off in Israel’s annual GDP.
The decline marks the largest drop in a three-month period since the onset of the coronavirus pandemic in 2020, when Israel’s economy plummeted by almost 30 per cent.
The Central Bureau of Statistics said the sharp drop was partially caused by the call-up of 300,000 IDF reservists, who were forced to leave their jobs to engage in months of service for the army.
Another hit to the economy was the Israeli government’s sponsorship of housing for more than 120,000 Israelis displaced from the northern and southern border areas of the country.
The war has also triggered an increase in government spending, which rose 88 per cent in the three months following October 7 compared to the preceding quarter.
According to analysts at Goldman Sachs, the economic data out Monday “pointed primarily to a contraction in private sector consumption and a deep contraction in investment, especially in real estate”.
“The deep GDP contraction occurred despite a strong surge in public sector consumption as well as a positive net trade contribution, with the decline in imports outpacing the decline in exports.”
Liam Peach, senior emerging markets economist at London-based Capital Economics, said in an analysis note that Israel’s GDP contraction “was much worse than had been expected and highlights the extent of the hit from the Hamas attacks and the war in Gaza,”
“While a recovery looks set to take hold in Q1, GDP growth over 2024 as a whole now looks likely to post one of its weakest rates on record.”
