In Q4 2023, Israel faced its sharpest economic decline since the COVID-19 pandemic started.
Israel’s Central Bureau of Statistics reported that the country’s economy dropped nearly 20%, on an annualized basis, in Q4 2023. The war in Gaza against Hamas affected consumer spending, trade and investment.
Preliminary figures show that Israel’s yearly GDP sank 19.4 percent in the fourth quarter. This is the sharpest three-month fall since COVID-19-induced lockdowns ravaged the economy.
Israel’s army calling up hundreds of thousands of military reservists and displacing citizens disrupted businesses in the first half of the quarter, as did the intensity of rocket attacks. Thus subsequent adjustments of the recently published figures may revise them upwards.
The size of the reversal
No matter its final size, the fourth quarter drop came on the heels of 2.7 percent economic growth in the third quarter. Looking closer, investments in fixed assets dove 67.8 percent, and goods and services imports sank 42.4 percent. Private consumption was down 26.9 percent and exports fell 18.3 percent. At the same time, increased military expenditures drove an 88.1% spike in government spending.
Slow return to growth
Analysts predict that the ongoing offensive in Gaza will continue to be a drag, but a lesser one, on the Israeli economy, with growth expected to be registered as early as Q1 2024. The Times of Israel stated on February 19 that Bank Hapoalim chief strategist Modi Shafrir noted that credit card purchases, foreign trade, and demand for employees were all up in January.
While growth compared to October and November is already seen, the war and uncertainty caused Moody’s to lower its rating for Israel on February 7. The rating, at A2 with a negative outlook, is the first drop in the country’s rating since Moody’s started coverage in 1998.
Gaza weighs on the regional economy
The war in Gaza is also taking a toll on the economy of Egypt. Reuters reported on January 24 that a poll of economists showed them lowering GDP growth forecasts from 4.2 percent to 3.5 percent for the fiscal year starting in July 2023. The Egyptian central bank estimated economic growth in October – December 2023 at 2.9 percent, down from 3.9 percent in July – September. The war in Gaza as well as a 40 percent drop in shipping in the Red Sea due to Houthi attacks on shipping as a show of solidarity with the Palestinians is seen as a factor in this drop.
The Lebanese economy, which The World Bank had seen as posting economic growth for the first time since 2018, is also feeling the effects of the war. The economy had been expected to grow 0.2 percent in 2023 but is now expected to fall.
