Impact of Gaza War on Israeli Economy
Israeli Economy Takes a Hit
Israelis drastically reduced their spending, travel, and investment at the end of 2023 due to the all-out war on Palestinian Hamas militants in Gaza. This conflict had a heavy toll on the economy, as revealed by data released on Monday.
Contraction in Fourth Quarter
The war brought economic growth to a halt, leading to a 19.4% annual contraction in the fourth quarter. The Central Bureau of Statistics released this initial estimate of gross domestic product (GDP), which was double the rate expected in a Reuters consensus.
Overall Growth and Per Capita GDP
Despite the fourth-quarter setback, 2023 as a whole ended with positive growth. The economy expanded by 2.0% for the year, exceeding the Organisation for Economic Cooperation and Development (OECD) average of 1.7%. However, per capita GDP experienced a 0.1% decline compared to the OECD average of 1.2% growth.
Impact on Economic Activities
The economy was on track for 3.5% growth in 2023 until the outbreak of the Iron Swords War on October 7. Subsequently, private spending, exports, and investment in fixed assets experienced significant declines, impacting various sectors of the economy.
Future Projections
Depending on the duration and expansion of the conflict, the economy is expected to grow by up to 2% in 2024. The central bank and other experts anticipate a sharp economic rebound in 2025, driven by the fundamental strength of Israel’s economy, particularly in the high-tech sector.
Government Spending and Inflation Rate
The economy in the fourth quarter was notably impacted by a surge in government spending, mainly on war expenses and compensating affected businesses and households. Additionally, Israel’s inflation rate eased to a more than two-year low of 2.6% in January.
Conclusion
Despite the challenges posed by the Gaza war, Israel’s economy remains resilient, with expectations of significant growth in the coming years.
