Official data reveals that Israel’s gross domestic product (GDP) contracted by nearly 20% in the fourth quarter of 2023, a significantly larger decline than the anticipated 10%. This economic downturn is attributed to the ongoing conflict with Hamas in Gaza, now entering its fifth month. Analysts from Goldman Sachs noted that the contraction was primarily due to a decline in private sector consumption and a substantial reduction in investment, particularly in real estate. Despite a surge in public sector consumption and a positive net trade contribution, with a greater decline in imports compared to exports, the GDP contraction was profound.
The data showed a 26.9% quarter-on-quarter annualized decrease in private consumption and a nearly 68% plunge in fixed investment. Residential construction came to a halt due to a shortage of both Israeli and Palestinian workers, the latter facing restrictions since October 7. Before the restrictions, over 150,000 Palestinian workers from the occupied West Bank daily entered Israel for employment, mainly in construction and agriculture.
The impact of the conflict has led to a challenging economic situation, with analysts expressing concern about the extent of the hit from Hamas attacks and the war in Gaza. While a recovery is expected in the first quarter of the following year, the overall GDP growth for 2024 is anticipated to be one of the weakest on record.
Israel’s high-tech economy, heavily reliant on human resources, has been significantly affected by the mobilization of 300,000 military reservists for deployment in both Gaza and the northern border with Hezbollah in Lebanon. This mobilization was triggered by a terror attack on October 7 by the Palestinian militant group Hamas, resulting in about 1,200 casualties in Israel. The subsequent offensive against the Gaza Strip and relentless bombing campaign has led to over 28,000 casualties, according to Gaza’s Hamas-run health ministry.
