Israel‘s economy has contracted sharply after the start of the war with Hamas, marking the first economic downturn for the country in two years.
When annualized, Israel’s gross domestic product nosedived by 19.4% in the fourth quarter, according to a statement from the country’s Central Bureau of Statistics on Monday. This is compared to 1.8% growth in the third quarter from July to September.
Goldman Sachs Group Inc. economists Tadas Gedminas and Kevin Daly said in a report that the release from the Israeli government “highlights the degree to which Israel’s economy has been affected by the conflict.”
The Israeli economy, worth approximately $520 billion, has been struck hard after the Oct. 7 surprise attack from Hamas, which led to the deaths of 1,200 civilians and the abduction of approximately another 250.
The continued conflict following Israel’s invasion of Gaza, aimed at destroying Hamas, is expected to cost approximately 255 billion Israeli shekels, or $70.3 billion, by the end of 2025, amounting to 13% of the country’s GDP.
Consumer confidence and household spending fell drastically after the Oct. 7 attack, leading to a 26.9% drop in private consumption.
The call-up of reservists is partially responsible for the economic downturn. Roughly 8% of the country’s workforce has been withdrawn for the war effort. Restrictions comparable to pandemic-era lockdowns also rocked the market.
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Fixed investment by businesses dropped by nearly 68%, driven by an abrupt halt to residential building and a reduction in Palestinian workers. Exports fell by over 18% as well.
Despite these problems, Israel’s GDP expanded by 2% in the full year, matching the projections from the central bank. The central bank expects the GDP to expand by another 2% in 2024.