Israel's economic contraction surpasses predictions due to the impact of the Gaza conflict

Official figures show that Israel's economy has suffered a significant contraction following the conflict with Hamas in Gaza. Gross domestic product (GDP) fell by 19% in the fourth quarter of 2023, which is equivalent to a 5% drop between October and December. The Central Bureau of Statistics stated that the outbreak of the conflict on October 7 directly affected the GDP. The conflict between Israel and Hamas began after gunmen from Hamas launched an unprecedented attack on Israel from Gaza, leading to the deadliest attack in Israel's history with 1,200 casualties. Additionally, Hamas took over 250 hostages. The Israeli military responded with a campaign that resulted in 29,000 casualties in Palestinian territory. The data released by Israel's Central Bureau of Statistics was worse than expected, with median estimates forecasting an annualized decline of 10.5%. Private spending and exports significantly dropped, and there was a substantial decline in investment in fixed assets, particularly in residential buildings. On the other hand, government spending, mainly on war expenses and compensations, surged by 88.1%. Although Israel's economy grew by 2% for the full year, it was originally anticipated to expand by 3.5% before the October attacks. Economists suggest that Israel's growth outlook for 2024 will likely post one of its weakest rates on record. The conflict has also impacted trade, with cargo ships heading to the Suez Canal on the Red Sea being targeted by Houthi rebels, backed by Iran. This has resulted in a significant reduction in revenue for the Suez Canal, as almost 15% of global seaborne trade passes through this route. The Houthis claim that the targeted ships are connected to Israel, but many vessel owners deny any links to Israel. The US and the UK have conducted retaliatory strikes on Houthi targets in Yemen. Prior to this, several major shipping companies had already chosen to avoid the strait.