Israel’s Economy Contracts More Than Anticipated
Official figures reveal that Israel’s economy contracted more than anticipated in the aftermath of the conflict with Hamas in Gaza. The country’s Gross Domestic Product (GDP), a crucial indicator of economic well-being, experienced a 19% decline on an annualized basis during the fourth quarter of 2023. This translates to a 5% drop between October and December. The Central Bureau of Statistics pointed out that the GDP was directly impacted by the outbreak of the conflict on October 7.
The unprecedented attack by Hamas from Gaza, marked as the deadliest in Israel’s history, triggered a war resulting in around 1,200 casualties. Hamas, recognized as a terrorist group by Israel, the US, the European Union, and the UK, also took more than 250 individuals hostage. Subsequent Israeli military actions, according to the Hamas-run health ministry, claimed 29,000 lives in the Palestinian territory.
The data, released by Israel’s Central Bureau of Statistics, surpassed expectations, with a 19% decline compared to the median estimate of a 10.5% annualized drop in a Bloomberg analyst survey. The war significantly curtailed spending, travel, and investment at the end of 2023, leading to a 26.3% decrease in private spending, an 18.3% fall in exports, and a 67.8% slump in investment in fixed assets, particularly in residential buildings.
Government spending surged by 88.1%, primarily allocated to war expenses and compensating businesses and households. Despite the substantial GDP decrease in the final quarter, Israel’s economy managed a 2% growth for the entire year, falling short of the expected 3.5% expansion before the October 7 attacks. Liam Peach, an economist at Capital Economics, emphasized the severity of the economic contraction due to the Hamas attacks and the Gaza war, projecting one of Israel’s weakest growth rates for 2024.
Beyond the direct impact on Israel, the conflict has disrupted trade in the region. Houthi rebels, supported by Iran, have targeted cargo ships in the Red Sea heading to the Suez Canal, leading to a substantial reduction in canal revenue, as reported by Egypt’s President Abdel Fattah al-Sisi. The attacks have affected global seaborne trade, with almost 15% passing through the Red Sea, emphasizing the broader consequences of the ongoing regional conflict.
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