War on Gaza: Israel’s economy shrinks almost a fifth in last quarter of 2023

Israel’s economy shrank by almost a fifth in annualised terms in the last quarter of 2023 as the financial impact of the war in Gaza was felt.

The drop in gross domestic product (GDP), which the Financial Times described as “far steeper” than had been predicted by analysts, has come in the months following the beginning of the war on 7 October.

The Central Bureau of Statistics said the GDP declined by an annualised 19.4 per cent compared with the third quarter, while on a pure quarter-by-quarter basis, compared with the previous three months, the economy contracted 5.2 per cent.

The calling up of 300,000 reservists to fight in Gaza was a prime cause of the decline, as was the government’s sponsorship of housing for more than 120,000 Israelis evacuated from areas close to conflict zones.

Despite the economy continuing to grow, rating agency Moody’s this month lowered Israel’s sovereign rating from A1 to A2.

The downgrade came in response to concerns over how long the conflict in Gaza could last, while it also lowered Israel’s debt outlook to negative because of the risk of the war spreading to Lebanon.

Israeli Prime Minister Benjamin Netanyahu has tried to downplay the problem, however.

“The rating downgrade is not connected to the economy. It is entirely due to the fact that we are in a war. The rating will go back up the moment we win the war – and we will win the war,” he said in a statement.

The Hamas-led attack on southern Israel on 7 October killed 1,139 people, most of them civilians. Approximately 240 people were taken back to Gaza as captives.

Israel’s subsequent attack on Gaza has killed nearly 30,000 Palestinians, most of them women and children, and destroyed most of the enclave’s civilian infrastructure and homes.