Due to the ongoing war in Gaza… Israel’s economy shrinks by 19.4% in the fourth quarter

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The Israeli Central Bureau of Statistics announced on Monday a preliminary estimate that Israel’s economy contracted by 19.4% on an annual basis in the fourth quarter of last year, as a result of the war in Gaza.

The office explained that the gross domestic product contracted by 19.4% on an annual basis during the last three months compared to the previous quarter, an estimate that exceeded Reuters’ expectations, which indicated a contraction of 10%.

For all of 2023, the economy grew by 2.0%, compared to growth of 6.5% in 2022, a figure above the Organization for Economic Co-operation and Development (OECD) average of 1.7%.

However, per capita GDP fell by 0.1% last year, versus an OECD average growth of 1.2%.

The statistics office noted that the economic contraction in the last quarter of 2023 was a direct result of the outbreak of the Iron Sword War on October 7.

The economy was affected in the fourth quarter by a 26.9% decline in private spending – the main driver of growth – a 18.3% decline in exports and a 67.8% decline in investment in fixed assets, especially in residential buildings.

Government spending, especially on war expenses, increased by 88.1%.

The estimated economic growth of 2% for last year is consistent with the latest forecasts of the Bank of Israel and the Ministry of Finance.

Mainly, Israel’s gross domestic product recorded a contraction of about a fifth in the last quarter of 2023, according to official figures from the Israeli Central Bureau of Statistics published on Monday, compared to the previous three months.

The decline of 19.4% in the last quarter is due to the extent of the impact of the ongoing war in Gaza on the economy of the high-tech country.

Overall, Israel’s GDP grew by 2% in 2023, which is less than the Bank of Israel’s forecast of 2.3%, after the outbreak of the ongoing war since October 7, according to Central Bureau of Statistics figures.

The last quarter of 2023 was the worst for the Israeli economy in terms of GDP per capita since the first quarter of the Covid pandemic in early 2020.

Exports fell by 18.3%, and imports fell by 42.4%, partly due to airlines canceling flights and international shipping avoiding crossing the Red Sea after Houthi rebels began attacking ships due to Israel’s war on Hamas.

The Governor of the Israeli Central Bank, Amir Yaron, revealed on the bank’s website last January 14 that Israel’s expenditures as a result of the war effort between the years 2023 and 2025 will reach about 220 billion shekels ($58.3 billion), and to this estimate must be added the loss of income due to the effects of the war.

On the 10th of this month, the US agency Moody’s lowered Israel’s credit rating by one notch, from A1 to A2, due to the impact of the ongoing conflict it is waging against Hamas in the Gaza Strip.

Moody’s attributed this in a statement to an assessment that showed that the ongoing military conflict with Hamas and its broader repercussions and consequences significantly increases the political risks for Israel and also weakens its executive and legislative institutions and its financial strength in the foreseeable future.

This is the first time that Israel has witnessed a downgrade in its long-term rating, according to Bloomberg.

Also, Moody’s lowered its forecasts for Israel’s debt to “negative” due to the “risk of escalation” with Lebanese Hezbollah along its northern border.

Moody’s attached its rating to a negative outlook, indicating that it expects a further decline in the near term.

Since the war, Israel has experienced massive labor shortages and the collapse of the tourism industry since the outbreak of war.

The Israeli army called up more than 300,000 reserve soldiers in the days following October 7, and the government immediately prevented the entry of at least 160,000 Palestinian workers, who constitute a large portion of the construction and agricultural workforce.

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