Israel’s economic output contracted more than anticipated following the clash with Hamas in Gaza, as per official data.
In the fourth quarter of 2023, the Gross Domestic Product (GDP) plummeted by 19% on an annualised basis, equating to a 5% decline from October to December. The Central Bureau of Statistics attributed this downturn directly to the outbreak of conflict on October 7.
The conflict between Israel and Hamas erupted after gunmen from Hamas initiated an unprecedented assault on Israel from Gaza, resulting in the deadliest attack in Israel’s history and claiming around 1,200 lives. Israel responded with a military campaign, resulting in the deaths of approximately 29,000 people in the Palestinian territory, as reported by the Hamas-run health ministry.
The figures released by Israel’s Central Bureau of Statistics on Monday were far worse than analysts had anticipated, with a median estimate of a 10.5% annualised decline.
The conflict severely curtailed spending, travel, and investment, with private spending dropping by 26.3%, exports declining by 18.3%, and investment in fixed assets plummeting by 67.8%, particularly in residential buildings. The construction sector suffered from labour shortages due to military call-ups and reduced Palestinian workforce participation.
Conversely, government spending surged by 88.1%, primarily due to war expenses and compensation for businesses and households affected by the conflict.
Despite the significant fourth-quarter contraction, Israel’s economy managed to achieve 2% growth for the full year. However, it was initially projected to expand by 3.5% before the October 7 attacks.
Liam Peach, an economist specialising in emerging markets at Capital Economics, characterised Israel’s economic contraction as worse than expected, suggesting that the growth outlook for 2024 might be among the weakest on record.
The conflict has also disrupted trade, with Houthi rebels in Yemen, backed by Iran, targeting cargo ships en route to the Suez Canal in the Red Sea. President Abdel Fattah al-Sisi of Egypt stated that these attacks had slashed Suez Canal revenue by 40% to 50% this year, affecting nearly 15% of global seaborne trade.
