Gaza war hits Israeli economy with 19.4% Q4 drop

Israel's economy faced a downturn in Q4 due to war, but ended 2023 with positive growth.

Israel's economy took a deep dive in the fourth quarter due to its war with Hamas in Gaza, but 2023 still ended with positive growth, data showed on February 19.

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The country’s gross domestic product (GDP) contracted an annualised 19.4% in the last three months compared to the previous quarter, the Central Bureau of Statistics said in an initial estimate. For all of 2023, the economy grew 2%, compared with 6.5% in 2022, but above an Organisation for Economic Cooperation and Development (OECD) average of 1.7%. However, per capita GDP slipped 0.1% last year versus an OECD average of 1.2% growth.

The war has raged since Hamas' Oct. 7 attack on southern Israel. Depending on the length of the conflict and whether it expands to other fronts, the economy is expected to grow as much as 2% in 2024.

"The contraction of the economy in the fourth quarter of 2023 was directly affected by the outbreak of the Iron Swords War on October 7," the Statistic Bureau said.

The economy in the fourth quarter was impacted by a 26.9% drop in private spending - the main growth driver - an 18.3% fall in exports and 67.8% slide in investment in fixed assets, especially in residential building. Government spending, mainly on war expenses, jumped 88.1%.

The estimated 2% overall growth for last year was in line with latest projections by the Bank of Israel and Finance Ministry.