Israel’s economy contracts for first time since 2009

Summer conflict in Gaza causes quarterly decline in GDP from July to September

Tamar Pileggi is a breaking news editor at The Times of Israel.

The Azrieli Towers, Tel Aviv, a center of commerce in Israel. (photo credit: Moshe Shai/Flash90)
The Azrieli Towers, Tel Aviv, a center of commerce in Israel. (photo credit: Moshe Shai/Flash90)

Israel’s economy contracted for the first time in five years, according to figures published by the Central Bureau of Statistics on Sunday.

The slowdown was a result of Operation Protective Edge in Gaza over the summer.

Gross domestic product shrank 0.4 percent in the July-September period, compared to a 3.2% and 2.2 % increase in GDP from 2014’s first two quarters respectively.

Israel’s 50-day Gaza war in July and August slowed overall production and compelled consumers to stay home, resulting in a 0.6% reduction in the annual GDP, which is expected to be 2.2% in 2014.

The last time Israel’s economy showed negative quarterly growth was in 2009.

In an attempt to counteract sluggish economic growth, the Bank of Israel lowered its benchmark interest rate to an all time low of 0.25%, a move that weakened the shekel, but boosted exports by 2.8%. 

Government spending rose 3.1% in the third quarter, as did private consumer spending, which increased 3.9%.

Tourism also decreased a substantial 31.1% in the months covered in the CBS’s data. In October, 19% fewer tourists visited Israel compared to October 2013.

Not including government expenditure, in total the economy decreased by 1.4% in the third quarter.

While public and private spending increased, the decline in the third quarter GDP was reflected in the the decrease in investments in fixed assets, which dipped 3.6%, following an annualized drop of 4.8% in the previous quarter.

The central bank figures indicate that growth picked up in September.

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