Israel’s Economy Contracts Nearly 20% in Q4 Amidst Gaza Conflict

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Israel's Economy

Israel’s gross domestic product (GDP) experienced a significant contraction of almost 20% in the fourth quarter of 2023, according to official figures. This decline exceeded expectations, as analysts had only predicted a contraction of about 10%. The sharp decline in the economy reflects the toll of the ongoing war between Israel and Hamas in the Gaza Strip, which has now entered its fifth month.

Impact on Consumption and Investment

The latest economic data released on Monday indicated a contraction primarily in private sector consumption and a significant decline in investment, particularly in the real estate sector. Analysts from Goldman Sachs noted that the deep GDP contraction occurred despite a substantial increase in public sector consumption and a positive net trade contribution. The decline in imports outpaced the decline in exports.

Factors Behind the Contraction

Official figures revealed a quarter-on-quarter annualized drop of 26.9% in private consumption, while fixed investment plunged nearly 68%. The halt in residential construction, due to a shortage of both Israeli and Palestinian workers, contributed to this decline. Since October 7, Palestinian workers have been mostly barred from entering Israel, impacting the construction and agriculture sectors, where they were predominantly employed.

Challenging Outlook

According to Liam Peach, a senior emerging markets economist at London-based Capital Economics, Israel’s GDP contraction “was much worse than expected and highlights the extent of the hit from the Hamas attacks and the war in Gaza.” Although a recovery is anticipated in the first quarter of this year (Q1), overall GDP growth for 2024 is expected to be one of the weakest on record.

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High-Tech Sector Impacted

Israel’s high-tech economy has been heavily affected by the conflict, as the country mobilized 300,000 military reservists for deployment in Gaza and on its northern border with Hezbollah in Lebanon. This significant military mobilization was triggered by the terrorist attack led by Hamas on October 7, which resulted in the death of approximately 1,200 people in Israel. In response, Israel launched an offensive against the Gaza Strip, resulting in extensive casualties within the blockaded territory.

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Please note that this article is meant to inform readers about the impact of the recent conflict on Israel’s economy and does not endorse or take a position on any political matters related to the conflict.