Israel’s gross domestic product (GDP) took a significant hit, contracting by nearly 20% in the fourth quarter of 2023, according to official figures released recently. This downturn surpassed earlier predictions by analysts, who had forecasted a contraction of around 10%. The sharp decline reflects the extensive toll of the ongoing conflict between Israel and Hamas in Gaza, which has persisted for five months.
The economic ramifications of the conflict are profound, with the high-tech sector being particularly hard-hit. Israel’s mobilization of 300,000 reservists for deployment both in Gaza and along its northern border with Hezbollah in Lebanon has exacerbated the situation. This mobilization has disrupted the workforce and stifled economic activity across various sectors.
Analysts from Goldman Sachs noted that the GDP contraction was primarily driven by a decrease in private sector consumption and a significant downturn in investment, notably in real estate. Despite a surge in public sector consumption and a positive net trade contribution, marked by a decline in imports surpassing the drop in exports, the overall economic performance remained bleak.
Official data revealed alarming statistics, including a quarter-on-quarter annualized decline of 26.9% in private consumption and a staggering 68% plummet in fixed investment. Residential construction, in particular, ground to a halt due to a shortage of both Israeli and Palestinian workers. Restrictions imposed on Palestinian workers’ entry into Israel since October 7 further exacerbated the labor shortage.
Before the restrictions, more than 150,000 Palestinian workers from the occupied West Bank commuted to Israel daily for employment in various sectors, primarily construction and agriculture. Liam Peach, senior emerging markets economist at Capital Economics in London, described Israel’s GDP contraction as “much worse than expected,” underscoring the significant impact of the conflict on the country’s economy.
He emphasized that while a recovery is anticipated in the first quarter, Israel’s GDP growth for 2024 is expected to be one of the weakest on record. The conflict between Israel and Hamas erupted following a terror attack on October 7 perpetrated by Hamas, resulting in approximately 1,200 casualties in Israel. In response, Israel launched an offensive against the Gaza Strip, resulting in extensive casualties, with over 28,000 reported deaths according to Gaza’s Hamas-run health ministry.