Economy Contracts 19.4% in Q4 Due to Gaza War

By Aryeh Stern

The sign of the Ministry of Finance in Yerushalayim. (Yonatan Sindel/Flash90)

Israel’s economy faced a significant downturn in the fourth quarter attributed to the war against the Hamas terror group in Gaza, according to data released on Monday.

The gross domestic product (GDP) experienced an annualized contraction of 19.4% in the last three months compared to the previous quarter. This initial estimate by the Central Bureau of Statistics surpassed the Reuters consensus forecast of 10%.

Despite this downturn, the overall growth for 2023 remained positive at 2.0%, a decrease from the 6.5% recorded in 2022. Per capita GDP, however, slipped by 0.1% in 2023, in contrast to the OECD average of 1.2% growth. The war has been ongoing since Hamas’s cross-border attack on Oct. 7, and depending on its duration and expansion, the economy is expected to grow up to 2% in 2024.

The fourth quarter’s economic contraction was notably influenced by a 26.9% decrease in private spending, an 18.3% fall in exports, and a 67.8% slide in investment in fixed assets, particularly residential building. Government spending, primarily on war-related expenses, saw an 88.1% increase. The estimated overall growth of 2% for 2023 aligns with the latest projections from the Bank of Israel and the Finance Ministry.

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