Israel’s Economy Slumps Due to Hamas War
Israel’s economy has experienced a severe downturn, with GDP contracting by an annualized 19.4% in the final quarter of last year. The conflict with Hamas wreaked havoc on businesses, leading to evacuations and the call-up of hundreds of thousands of reservists.
Analysts had anticipated a GDP decline of 10.5%, but the actual figures far exceeded expectations. The news of the economic slump caused the shekel to weaken slightly and initially dampened stock market gains.
The disruption caused by the war severely affected private sector activity in Israel. Despite the downturn in the final months of 2023, the economy still managed to expand by 2% over the full year.
The Bank of Israel and Finance Ministry have differing growth projections for 2024, with the central bank forecasting a 2% increase. The economic shockwaves also had a devastating impact on the Palestinian territories, with the IMF estimating a 6% drop in GDP in Gaza and the West Bank.
To mitigate the market fallout, Israeli authorities resorted to unprecedented measures such as selling reserves to bolster the local currency. Despite the challenges, there are signs of stabilization, with consumer confidence rebounding and inflation remaining under control.
In response to the economic contraction, the central bank has slashed interest rates, with further cuts expected in the near future. The road to recovery may be long, but Israel is determined to bounce back from the economic repercussions of the war with Hamas.
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