Israel’s economic output experienced a significant contraction in the final quarter of 2023, marking the first decline in nearly two years, primarily due to the toll of the conflict with Hamas.
The Gross Domestic Product (GDP) plummeted by 19.4% on an annualized basis compared to the previous quarter, which saw a revised growth of 1.8%, according to Israel’s Central Bureau of Statistics.
The sharp decline was driven by a 26.9% reduction in private consumption as consumer confidence dropped following the October 7 attacks, leading households to cut back on spending. Additionally, fixed investment by businesses nosedived by 67.8%, largely due to a slowdown in residential building caused by military call-ups and a decrease in Palestinian workers.
Exports also declined by 18.3%, contributing to the overall economic contraction.
Despite expectations of a recovery in the first quarter, analysts anticipate that the GDP growth for 2024 as a whole could be one of the weakest on record.
The conflict with Hamas has significantly impacted Israel’s economy, with the cost estimated to reach around 255 billion shekels ($70.3 billion) by the end of 2025, equivalent to approximately 13% of GDP, according to the Bank of Israel.
Moody’s recently downgraded Israel’s credit rating for the first time, citing elevated political risk and worsening public finances due to the war.
However, despite the challenges, Israel’s tech sector has demonstrated resilience, which is vital for the economy. The sector, which accounts for a significant portion of GDP, exports, and tax revenue, continues to operate despite the ongoing conflict. International tech companies remain invested in Israel, and there are indications of potential fundraising picking up in the near future.
Intel’s commitment to building a chipmaking factory in Israel, despite the conflict, reflects confidence in the country’s tech industry. Additionally, efforts to attract investment, such as a forthcoming visit by Korean investors, suggest ongoing interest in Israel’s tech ecosystem despite the challenging circumstances.
