Israel’s war-battered economy sees double-digit contraction, sharpest since coronavirus crisis

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustrative: A Pri Galil employee protests against layoffs, in Hatzor HaGlilit, February 11, 2024. (David Cohen/Flash90)
Illustrative: A Pri Galil employee protests against layoffs, in Hatzor HaGlilit, February 11, 2024. (David Cohen/Flash90)

Israel’s economy recorded a double-digit contraction in the three final months of 2023, with the ongoing war with the Hamas terror group taking a heavy toll on consumer spending, trade and investment, preliminary data by the Central Bureau of Statistics shows.

The country’s economy shrank at a 19.4 percent annual rate in the fourth quarter of 2023 as the devastating Hamas-led onslaught on October 7, in which Palestinian terrorists killed some 1,200 people sparked a war in Gaza. In response, Israel launched airstrikes and a ground offensive aimed at toppling the Gaza-ruling Hamas and freeing the 253 hostages were taken into the Gaza Strip.

It marks the deepest decline since the second quarter of 2020 when the economy dipped almost 30% as the coronavirus pandemic-related lockdowns hurt consumer spending and left many businesses closed.

The double-digit contraction that hit the economy during the war quarter compared with an expansion of 2.7% in the third quarter of 2023. Private consumption in the October to December period of 2023 plunged 26.9% and import of goods and services was down 42.4%.

Preliminary data from the Central Bureau of Statistics showed the economy expanded 2% in 2023 after growing at a fast pace of 6.5% in 2022. Private consumption decreased by 0.7% in 2023 after a 7.4% increase in 2022.

The import of goods and services fell in 2023 by 6.9%, after growing 12% in 2022. Exports of goods and services fell 1.1% in 2023 versus an increase of 8.6 in the year earlier.

The economic fallout from the war and expected downturn in private consumption and demand, and investment in sectors such as construction, prompted the Finance Ministry, the Bank of Israel, and global credit rating agencies to cut their growth prospects for 2023 in recent weeks, as the fighting is estimated to cost the economy as much as NIS 255 billion.

The OECD lowered the GDP forecast for Israel to 2.3 percent in 2023 from 2.9% projected before the outbreak of the war. The Bank of Israel shaved its growth outlook and expected the economy to grow by 2% in 2023 and 2024, respectively.

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