The military campaign in Gaza has led to a fall in domestic consumption, exports and investment, with sectors such as tourism paralyzed. However, GDP grew by 2% per year, despite falling on a per capita basis.
The Israeli economy shrank 19.4% in the last quarter of last year, reflecting the weight of the military campaign in Gaza, a more negative result than analysts had predicted. For the year, gross domestic product increased by 2%, but decreased on a per capita basis.
The last quarter of 2023 marked the start of an Israeli military campaign in Gaza following an October 7 attack by Hamas, which led to a decline in some sectors of the economy, particularly tourism. Domestic consumption, the main driver of the Israeli economy, fell 26.9% quarter-on-quarter in the fourth quarter, while exports fell 18.3%.
Investment also fell significantly, contracting 67.8% compared to the third quarter. In contrast, public spending rose by 88.1%, directly related to the ongoing war in Gaza and northern Israel, where firefights with Hezbollah have been recurring.
Looking at the total for 2023, the Israeli economy is still projected to grow by 2%, surpassing the OECD's forecast of 1.7%. At the start of the year, Benjamin Netanyahu's government had forecast a 3.5% increase.
However, relative to the country's population, GDP per capita declined by 0.1%.
The Tel Aviv Statistics Office attributed the negative data to the ongoing military operation, explaining that the war “changed the composition of GDP”. In particular, the government has mobilized thousands of reservationists, affected consumption, and is still spending substantial sums on evacuees in the north and south of the country.
In addition, there are significant labor shortages in many sectors, particularly in construction, reflecting the suspension of work permits for thousands of Palestinians since October 7.
It is worth recalling that Moody's recently downgraded Israel's credit rating to 'A2' with a 'Negative' outlook, citing the impact of the war on public finances as the main reason behind the decision. The country's finance minister, Bezalel Smodrich, downplayed the decision and characterized it as politically motivated.
At the end of December, Smodrich predicted that the Gaza campaign would cost around 13 billion euros this year. Israeli operations in Gaza have killed more than 29,000 Palestinians and wounded more than 69,000 since the October 7 attack that killed 1,169 Israelis.
“Hardcore explorer. Extreme communicator. Professional writer. General music practitioner. Prone to fits of apathy.”