Israel’s GDP shrinks nearly 20% in fourth quarter amid war in Gaza

An Israeli national flag over produce for sale at the Carmel Market in Tel Aviv, Israel, on November 7, 2023.

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Israel’s gross domestic product shrank by almost 20% in the fourth quarter of 2023, according to official figures.

The contraction was significantly larger than expected, with analysts predicting a contraction of 10%. It reflects the reckoning of the country’s war against Hamas in Gaza, now entering its fifth month.

Economic data released on Monday “mainly showed a contraction in private sector consumption and a deep contraction in investment, especially in real estate,” Goldman Sachs analysts wrote in a research note.

“The deep contraction in GDP occurred despite strong growth in public sector consumption as well as a positive net contribution to trade, with the decline in imports outpacing the decline in exports.”

Official data showed a 26.9% quarterly drop in private consumption on a year-on-year basis and fixed investment falling nearly 68% as housing construction ground to a halt amid a shortage of workers in Israel due to military mobilization and Palestinian workers as the latter group mostly had banned from entering Israel since October 7.

Before then, more than 150,000 Palestinian workers from the occupied West Bank entered Israel every day to work in various sectors, mainly in construction and agriculture.

Israel’s GDP contraction “was much worse than expected and underlines the extent of the damage from Hamas attacks and the war in Gaza,” said Liam Pitts, senior emerging markets economist at London-based Capital Economics. in analysis note.

“While the recovery looks set to prevail in Q1, GDP growth relative to 2024 as a whole now looks likely to register one of the weakest rates on record.”

Israel’s high-tech economy is particularly affected by the fact that it has mobilized 300,000 of its men and women as military reservists to be deployed both in Gaza and on its northern border with Hezbollah in Lebanon.

The mobilization was sparked by the October 7 terror attack led by the Palestinian militant group Hamas that killed around 1,200 people in Israel. Israel’s subsequent offensive against the Gaza Strip and relentless bombing campaign have killed more than 28,000 people in the enclave, according to the Hamas-run Gaza health ministry.

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