Israel’s economy faced a significant downturn following the conflict with Hamas in Gaza, with official figures revealing a sharper contraction than anticipated. Gross domestic product (GDP) plummeted by 19% on an annualized basis in the fourth quarter of 2023, equivalent to a 5% decline between October and December. The Central Bureau of Statistics attributed this decline directly to the outbreak of the conflict on October 7.
During the conflict, Israel experienced an unprecedented attack by Hamas gunmen from Gaza, resulting in significant casualties and damage. The conflict led to widespread disruption, including a sharp decrease in spending, travel, and investment. Private spending dropped by 26.3%, exports fell by 18.3%, and investment in fixed assets, particularly residential buildings, saw a staggering 67.8% decline. The construction sector was severely affected by a shortage of labor due to military call-ups and reduced Palestinian workers.
Despite the steep decline in GDP in the final quarter of the year, Israel’s economy managed to grow by 2% for the full year. However, this growth was below previous expectations, which had projected a 3.5% expansion before the conflict erupted.
Liam Peach, an economist at Capital Economics, remarked that Israel’s economic contraction was far worse than anticipated, signaling the significant impact of the Hamas attacks and the conflict in Gaza. The growth outlook for 2024 now appears to be one of the weakest on record for the country.
The conflict also had broader repercussions, affecting global trade routes. Houthi rebels, backed by Iran, targeted cargo ships on the Red Sea en route to the Suez Canal, leading to a substantial reduction in revenue for Egypt’s Suez Canal Authority. President Abdel Fattah al-Sisi stated that the attacks had slashed canal revenue by 40% to 50% in the current year.
The Red Sea serves as a vital route for global trade, with almost 15% of seaborne trade passing through the area annually. Houthi strikes on ships, which they claim are Israeli-affiliated or heading to Israeli ports, have further disrupted maritime traffic in the region.
The conflict in Yemen has also drawn involvement from the US and the UK, with retaliatory strikes targeting Houthi positions. Prior to these developments, several major shipping companies had already diverted their vessels away from the Red Sea strait due to safety concerns.
