The decline was prompted by evacuations and a record call-up of reservists
Israel’s economy faced one of the biggest contractions in the country’s history in the fourth quarter of last year due to the ongoing war with Hamas, a report from the country’s Central Bureau of Statistics revealed on Monday.
The country’s GDP slumped by a seasonally adjusted 19.4% in the final three months of 2023, which was the first quarterly drop in Israel’s economy in two years.
The contraction was significantly worse than both the Bloomberg and Reuters consensus forecast of a 10% decline. The hostilities paralyzed businesses, prompted evacuations and a record call-up of reservists, which removed roughly 8% of the country’s workforce, according to economists.
The war caused a severe disruption to Israel’s $520 billion economy, leading to “restrictions comparable to shutdowns imposed during the Covid-19 pandemic, causing a sudden crash in manufacturing, jolting consumption and briefly emptying schools, offices and construction sites,” Bloomberg wrote.
Investment in Israel took the biggest blow, plunging by 70%, while private consumption, a major driver of economic growth, dropped by 27% in the fourth quarter. Public consumption plummeted by almost 90%, data showed.
Meanwhile, government spending skyrocketed by 88.1%, according to the statistics. Increased military spending played a large role in the surge.
For the full year, Israel’s GDP expanded by 2%, down from 6.5% growth in 2022. The Bank of Israel maintained its growth estimate for 2024 at 2%, while the Finance Ministry sees it at 1.6%.
Earlier this month, the international ratings agency Moody’s lowered Israel’s credit rating, which was the country’s first-ever sovereign downgrade. Israel’s rating was lowered from A1 to A2 and its outlook kept at ‘negative’ due to what the ratings agency believes are the political and fiscal risks stemming from the country’s continuing war with Hamas.
