36.1 C
Washington

Israel’s economy sinks 20% as the war decimates consumer spending and real-estate investments

Date:

Share:



Israel’s war in Gaza has taken a toll on the country’s economy. In the fourth quarter of 2023, Israel’s economy contracted almost 20% compared to the previous quarter, according to the Central Bureau of Statistics. 

The declines were expected, given the war that broke out since the October 7 terrorist attacks, but they were higher than forecasted. A November report had predicted an annual GDP growth rate of 2.3%, according to a forecast from the Organisation for Economic Co-operation and Development. The actual growth rate of Israel’s GDP was 2.0% for 2023. That number was still below estimates and the pre-October 7 trajectory, which saw annual growth on track to hit 3.5%.   

The drop in Israel’s GDP highlights the lasting effects of Hamas’ attacks and the ongoing war in Gaza. A recovery is to be expected this quarter and throughout 2024—although, given the uncertain duration of the war, these figures could be subject to further change, which could have ripple effects throughout the Middle East and global economy. 

The worse-than-forecasted results were driven primarily by two sectors that were heavily impacted by the war: consumer spending, and real-estate investment. Private consumption in the quarter declined 26.9%. 

Immediately after October 7, much of Israel shut down due to security concerns. Many businesses have reopened since then, but consumer confidence remains low, meaning that households are spending less. In November, consumer confidence in Israel plummeted as the threat of further attacks from Hamas remained high. From October to November, Israel had the biggest month-to-month declines in consumer confidence of any country in the world, according to market research firm Ipsos. 

Israeli spending was also hurt by the fact that thousands of families have been displaced from border towns near Gaza and in northern Israel near the Lebanese border. Whether these Israelis will return to their homes remains to be seen. In the meantime, their precarious living situations have reduced their discretionary spending.

In the real-estate market, investment was down markedly after the war caused the property market to stumble toward the end of 2023. At the very beginning of the war, in early October, some analysts had expected the Israeli property sector to struggle more than it had during COVID lockdowns. The drops in real-estate investment mirror those across the entire economy, where fixed income investment fell 68% in the quarter.  

Israel’s economy is also facing a challenged labor market. Since the start of the war, the Israeli Defense Force called up some 400,000 reservists to serve in the military, diverting their efforts from the workforce to the war’s front lines. While many Palestinians, especially from the West Bank, have had their work permits suspended, upending the construction and agriculture sectors. The Israeli agricultural sector also has many overseas workers, mainly from Thailand, almost all of whom returned home since the start of the war. By the end of November, some 10,000 workers had left Israel, according to government estimates. 

Much of the economic slowdown is expected to reverse course this year and into 2025. In 2024, Israel’s economy is expected to grow as much as 2%. Once the war subsides, the Israeli government expects a full economic recovery. Prior to October 7, Israel’s economy was healthy, bolstered by its resilient, world-class tech sector. 

Subscribe to the new Fortune CEO Weekly Europe newsletter to get corner office insights on the biggest business stories in Europe. Sign up for free.



Source link

Subscribe to our magazine

━ more like this

Donald Trump taken off stage during rally after apparent gunshots; Secret Service says he is safe

Donald Trump’s campaign said in a statement that he was “fine” after being whisked off the stage at a rally in Butler, Pennsylvania...

Call your shot: Investors are buying individual stocks at a record pace as market-beating bets dwindle to lowest ever

More investors are calling their shots and picking out individual stocks to buy as market gains become concentrated in an increasingly narrow range...

A trip to Shanghai’s AI mega-conference showed me that China’s developers are still playing catch-up to Silicon Valley

Last week, Shanghai hosted China’s largest AI event: The World Artificial Intelligence Conference (WAIC), with 500 exhibitors, 1,500 exhibits, over 300,000 attendees, and...

Trailers of the week: Captain America, F1, and Gladiator II

There’s a bit of a theme of payoff in this week’s trailers. Anthony Mackie finally takes the lead on the big screen after...

U.S. corporate bankruptcies are soaring above the pandemic-era peak, adding to the economic alarms bells piling up

The number of U.S. companies that filed for bankruptcy last month topped the highs seen during the early stages of the pandemic in...