A Palestinian walks past the rubble of a destroyed building in Gaza.
Israelis sharply cut spending, travel and investment at the end of 2023 as Israel's all-out war against Palestinian Hamas militants in the Gaza Strip took a heavy toll on the economy, according to data released on Monday.
The war halted economic growth in its tracks and led to a mass call-up of reservists and the displacement of tens of thousands of people from border towns near Gaza and Lebanon, particularly due to constant rocket attacks from Hamas and Hezbollah.
Initial estimates of gross domestic product (GDP) released by the Central Bureau of Statistics showed the $500 billion economy contracted at an annualized rate of 19.4% in the fourth quarter from the previous three months, which was expected by the Reuters consensus. It was twice the rate.
Still, 2023 ended with positive growth overall.
“The economic contraction in the fourth quarter of 2023 was directly affected by the Iron Sword War that broke out on October 7,” the statistics bureau said.
The economic growth rate for all of 2023 was 2.0%, compared to 6.5% in 2022, which was higher than the Organization for Economic Co-operation and Development (OECD) average of 1.7%. However, GDP per capita fell by 0.1% last year, compared to the OECD average growth of 1.2%.
Until Hamas' cross-border attack on southern Israel on October 7, Israel's economy was on track to grow by about 3.5% in 2023. But October was a particularly tough month for most Israelis. Many of them know people who were killed or kidnapped in the riots – they weren't in the mood to shop, and movie theaters and other entertainment venues were mostly closed, but they are now open.
Economic growth is expected to be up to 2% in 2024, depending on the length of the conflict and whether it spreads to other fronts. The central bank and other authorities believe that Israel's economy is basically healthy and are predicting a rapid economic recovery in 2025. , led by the high-tech sector, which has shown resilience even after previous conflicts.
The GDP figures followed figures showing Israel's inflation rate fell to 2.6% in January, its lowest level in more than two years. With the economy slowing and inflation back within the 1% to 3% target, that would normally be enough to prompt another rate cut, following January's quarter-point rate cut. But some analysts believe policymakers intend to remain cautious and maintain their primary goal of maintaining financial stability.
The next interest rate will be decided on February 26th.
The economy in the fourth quarter was affected by a 26.9% decline in private spending, the main growth driver, an 18.3% decline in exports, and a 67.8% decline in investment in fixed assets, particularly residential construction. Ta.
Government spending, mainly aimed at war costs and compensation for affected businesses and households, increased by 88.1%.
Last year's estimated overall growth rate of 2% was in line with the latest forecasts from the Bank of Israel and the Ministry of Finance. The Bank of Israel forecasts 5% growth in 2025.
In 2023, personal spending decreased by 0.7%, exports decreased by 1.1%, and fixed asset investment decreased by 1.9%. Government spending last year increased by 8.3%.
After the release of the data, the shekel weakened by 0.6% against the dollar, and the Tel Aviv 125 main stock index rose 0.6%.
