Israel's GDP shrinks by about 20% in the fourth quarter amid the Gaza war

Monday's economic data “pointed primarily to a contraction in private sector consumption and a deep contraction in investment, especially in real estate,” Goldman Sachs analysts wrote in a research note.

“The deep contraction in GDP occurred despite a strong rise in public sector consumption as well as the positive contribution of net trade, as the decline in imports outweighed the decline in exports.”

Official figures showed a 26.9% annual decline in private consumption on a quarterly basis, and fixed investment fell by almost 68% as residential construction halted amid a shortage of Israeli workers due to military mobilization and Palestinian workers as the latter group. Most of them have been banned from entering Israel since October 7.

Before that, more than 150,000 Palestinian workers from the occupied West Bank entered Israel daily to work in a range of sectors, mostly in construction and agriculture.

Israel's GDP contraction “was much worse than expected and highlights the extent of the blow to the Hamas attacks and war in Gaza,” Liam Beach, chief emerging markets economist at London-based Capital Economics, said in an analysis note.

“While the recovery looks set to take hold in the first quarter, GDP growth over 2024 as a whole now looks likely to be one of its weakest rates on record.”

Israel's high-tech economy is particularly affected by the fact that it has mobilized three hundred thousand of its men and women as military reserve forces for deployment in Gaza and on its northern border with Hezbollah in Lebanon.

This mobilization came after the October 7 terrorist attack led by the Palestinian armed group Hamas, which killed about 1,200 people in Israel. The subsequent Israeli attack on the Gaza Strip and relentless bombing campaign killed more than 28,000 people in the besieged enclave, according to the Hamas-run Health Ministry in Gaza.