Calcalist: The war with Iran set the Israeli economy back

The Israeli economic newspaper Calcalist noted in an analysis that the war with Iran wasn’t limited to military and security repercussions, but also directly impacted the Israeli economy, pushing it into a deep recession unprecedented in years.

The Israeli newspaper confirmed that key performance indicators have returned to their same levels as last year, a deterioration it described as a full year’s regression.

It noted that this decline isn’t merely a temporary slowdown, but rather a worrying trend that threatens near-term growth stability and casts a dark shadow over long-term economic prospects.

According to data from the Central Bureau of Statistics cited by the Calcalist newspaper, GDP contracted sharply by 3.5% on a seasonally adjusted annual basis and by 1% on a simple quarterly basis.

With a population growth rate of 2% annually, per capita GDP fell by 4.4%, effectively returning to its second-quarter 2024 levels.

The commercial sector, the economy’s primary driver, witnessed a deeper decline of 7%, which Calcalist described as a warning bell reflecting the fragility of the economic structure under the pressure of war.

Calcalist published a comparison with JP Morgan’s estimates from early July, which predicted a limited contraction of only 0.5%.

However, official data revealed that the decline was nearly double that figure, opening the door to further reductions in growth forecasts.

The bank estimated annual growth at only 2.6%, which the newspaper described as a “weak level,” suggesting it would likely be further reduced as indicators continue to deteriorate.

Data reveals a clear collapse in individual consumption: Private per capita consumption fell by 5.1%.

Spending on durable goods such as cars and electrical appliances fell by 10%.

Consumption of semi-durable goods such as clothing, footwear, and household appliances fell by 35%, or 10.5% on a quarterly basis.

According to Calcalist, “Although families have not stopped purchasing basic necessities, the significant decline in spending on luxury goods reflects a real constriction in the standard of living”.

Total investments declined by 12% annually, but the biggest shock came from the construction sector: Housing construction investments fell by 18%.

Non-residential construction collapsed by 25%.

Calcalist considered these figures to “embody a double crisis, as there is a stagnation in construction projects and a severe labor shortage, which is deepening the housing crisis and pushing prices to unsustainable levels”.

Despite an exceptional 220% increase in investments in transportation assets and equipment leasing companies, and a 20% increase in investments in the information technology sector, Calcalist described the situation as “a few bright spots in an otherwise gloomy picture”.

According to Calcalist, overall exports fell by 7%, but excluding diamonds and startups, the actual decline was only 3.5%, thanks to continued activity in the technology and security industries.

In contrast, imports rose to 21% of the economy’s total revenues.

Calcalist commented, “This excessive reliance on foreign resources reveals Israel’s vulnerability to any sanctions or cancellation of trade agreements, particularly with the European Union”.

Calcalist explained that government consumption declined by 1% annually, affected by a decline in civilian spending, while defense spending increased after the addition of 42 billion shekels (about $12.39 billion) to the military budget.

Calcalist described this approach as a choice that increases pressure on civil life and leaves society in a state of continuous decline.

Calcalist concluded that Israel is not officially in a recession, as the measure requires two consecutive quarters of contraction, but it is in a state of “almost zero growth” that is likely to continue.

While the government is portraying the situation as a “transitory challenge,” the reality, is an economy mired in a prolonged slowdown, and a standard of living that deteriorates with every additional month of war.