Israel’s economy contracts nearly 20% after outbreak of war

A shopper at an empty space of the Machane Yehuda market in Jerusalem, Israel.
Photo: Bloomberg

Israel’s economy suffered one of its worst-ever slumps, after the Hamas war paralyzed businesses, forced people to evacuate their homes and caused the military to call up hundreds of thousands of reservists.

Gross domestic product shrank an annualized 19.4% in the final three months of last year, in seasonally-adjusted terms, according to preliminary figures released on Monday. That was worse than every estimate in a Bloomberg survey of analysts, whose median forecast was for a decline of 10.5%.

“The release highlights the degree to which the Israeli economy has been affected by the conflict, particularly on the private activity side,” Goldman Sachs Group Inc. economists Tadas Gedminas and Kevin Daly said in a report.

The assessment is the first official tally of the war’s toll on GDP and captures the extent of the disruption that tore through the $520 billion economy in the aftermath of Hamas’s attacks on Oct. 7. Alongside the call-up of reservists that depleted roughly 8% of the workforce, it led to restrictions comparable to shutdowns imposed during the Covid-19 pandemic, causing a sudden crash in manufacturing, jolting consumption and briefly emptying schools, offices and construction sites.

Economic shockwaves from the war have been far more devastating in Palestinian territories, adding to the humanitarian crisis unfolding in Gaza. The International Monetary Fund has said the Mediterranean enclave saw “an almost complete collapse of activity” in the fourth quarter, estimating that cumulative GDP in Gaza and the West Bank plunged 6% in 2023.

Highlights from Israel’s GDP report

• Private consumption expenditure fell almost 27% on an annualized basis in the fourth quarter, with fixed investment plunging nearly 68%
• General government consumption expenditure soared just over 88%
• Exports dropped 18% and imports slumped over 42%
• GDP expansion in the third quarter was revised down to 1.8% from an initial 2.7%

Israel’s government was downgraded for the first time ever, by Moody’s Investors Service, this month. That came as it plans to ramp up bond issuance to fund the conflict.

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