April 13, 2024

Israel’s economy shrinks more than expected on Gaza war

Image source, Getty Images

Israel’s economy shrank by far more than expected in the wake of conflict with Hamas in Gaza, according to official figures.

Gross domestic product (GDP) – a key measure of a country’s economic health – fell by 19% on an annualised basis in the fourth quarter of 2023.

That is the equivalent of a fall of 5% between October and December.

GDP was “directly affected” by the outbreak of the conflict on 7 October, the Central Bureau of Statistics said.

Israel and Hamas have been at war after gunmen from the Palestinian group launched an unprecedented attack on Israel from Gaza – the deadliest in Israel’s history.

About 1,200 people were killed during the attack. Hamas, which is considered a terrorist group by Israel, the US, the European Union and the UK, also took more than 250 men, women and children hostage.

An Israeli military campaign has followed, which has killed 29,000 people in the Palestinian territory, according to the Hamas-run health ministry there.

Experts said the data released on Monday by Israel’s Central Bureau of Statistics was much worse than had been expected.

The median estimate in a Bloomberg survey of analysts was for an annualised decline of 10.5%.

The Central Bureau of Statistics said the war had sharply curtailed spending, travel and investment at the end of last year.

It said private spending dropped by 26.3%, exports fell by 18.3% and there had been a 67.8% slide in investment in fixed assets, especially in residential buildings. The construction sector suffered from a lack of labour, due to military call-ups and a reduction in Palestinian workers.

Meanwhile, government spending, mainly on war expenses and compensating businesses and households, jumped by 88.1%.

Despite the sharp drop in GDP between October and December, Israel’s economy grew by 2% for the full year.

However, before the 7 October attacks, it had been expected to expand by 3.5%.

Liam Peach, emerging markets economist at Capital Economics, said the contraction of Israel’s economy was “much worse than had been expected and highlights the extent of the hit from the Hamas attacks and the war in Gaza”.

He said the country’s growth outlook for 2024 “now looks likely to post one of its weakest rates on record”.

Elsewhere, the conflict has affected trade. Houthi rebels, backed by Iran, have been targeting cargo ships on the Red Sea that are heading to the Suez Canal.

Egypt’s President Abdel Fattah al-Sisi said on Monday that the attacks had cut Suez Canal revenue by between 40% and 50% this year.

The Red Sea is one of the world’s most important routes for cargo – almost 15% of global seaborne trade usually passes through the area.

The Houthis have been carrying out strikes from bases in Yemen on ships which they claim are Israeli-owned, flagged or operated, or are heading to Israeli ports. However, the owners and operators of many vessels claim they have no links with Israel at all.

The US and the UK have carried out retaliatory strikes on Houthi targets in Yemen in turn.

But even before this, some of the world’s largest shipping companies had stopped their vessels from passing through the strait.

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