Israel's GDP shrinks by almost 20% in Q4 due to Gaza conflict

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

The decline was much larger than anticipated, with analysts expecting a contraction of around 10%. This sharp downturn reflects the impact of Israel's ongoing conflict with Hamas in Gaza, now in its fifth month.

The latest economic data, released on Monday, indicated a significant decrease in private sector consumption and a substantial drop in investment, particularly in real estate, as noted by analysts at Goldman Sachs in a research note.

Despite a surge in public sector consumption and a positive net trade contribution, with imports declining more than exports, the GDP contraction persisted.

Official statistics revealed a quarter-on-quarter annualized drop of 26.9% in private consumption and a staggering 68% decline in fixed investment, largely due to the cessation of residential construction. This halt stemmed from a shortage of both Israeli workers, who were mobilized for military service, and Palestinian workers, who were mostly prohibited from entering Israel since October 7.

Prior to the restrictions, over 150,000 Palestinian workers from the occupied West Bank commuted daily to Israel for employment, primarily in construction and agriculture.

Liam Peach, senior emerging markets economist at Capital Economics in London, characterized Israel's GDP contraction as "much worse than expected," underscoring the severe impact of the Hamas attacks and the Gaza war.

While a recovery appears imminent in the first quarter, overall GDP growth for 2024 is projected to be one of the weakest on record.

Israel's high-tech sector has been particularly affected by the mobilization of 300,000 reservists for deployment in Gaza and along the northern border with Hezbollah in Lebanon.

The mobilization followed the October 7 terror attack perpetrated by Hamas, resulting in approximately 1,200 casualties in Israel. Subsequent Israeli military operations in Gaza, including extensive bombing campaigns, have led to over 28,000 casualties, according to Gaza's Hamas-run health ministry.