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Israel’s economy to fall 19.4% in Q4 2023 due to war in Gaza

Businesses are closed in the Israeli city of Sderot due to the war between Israel and Hamas, seen on February 11, 2024. (Credit: Ariel Shalit/AP)

Israel’s economy declined sharply in the last three months of 2023, falling for the first time in nearly two years, as the war with Hamas took a heavy toll on the economy.

Israel’s Central Bureau of Statistics said in its estimate on Monday that gross domestic product (GDP) fell 19.4% on an annual basis compared to the July-September quarter, when it grew by a revised 1.8%.

This decline, worse than expected, was due to a 26.9% decline in private consumption as confidence fell following the October 7 attacks and households cut spending.

According to Liam Peach, chief emerging markets economist at Capital Economics, corporate fixed investment fell by 67.8%, “due to the call-up of the army and the shortage of Palestinian workers that has led to an almost complete halt in housing construction.” Exports decreased by 18.3%.

“Although the (first quarter) recovery appears to be taking hold, GDP growth in 2024 is likely to record one of the weakest rates in its history,” Peach said in a note on Monday.

According to the statistics office, the Israeli economy grew 2% last year.

The Israeli shekel weakened slightly after the data release and was trading around 3.62 per US dollar. But the currency has recovered significantly since falling immediately after the October attacks, thanks to support from the central bank.

The Israeli stock market ignored the negative GDP data. The benchmark Tel Aviv 125 index – which includes the 125 most valuable companies on the Tel Aviv Stock Exchange and is considered a barometer of the Israeli economy – rose 0.6% by mid-afternoon.

The production decline is the latest bad economic news for Israel, which is waging a war in Gaza aimed at destroying Hamas.

According to the Bank of Israel, the conflict will cost Israel about 255 billion shekels ($70.3 billion) by the end of 2025, equivalent to about 13% of gross domestic product.

In November, the central bank cut its GDP growth forecast for this year to 2% from a forecast of 3% on the eve of the war.

Earlier this month, Moody’s downgraded Israel’s credit rating for the first time in its history, citing high political risk and deteriorating public finances due to the war.

With information from Ido Soen.

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(TagstoTranslate)Israel WarHamas(T)Middle East

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