According to official data, Israel's GDP contracted by almost 20% in the fourth quarter of 2023.

The contraction exceeded analysts' expectations by a significant margin, as they had projected a contraction of approximately 10%. It represents the cost of the nation's now-entering fifth month of war against Hamas in Gaza.

Goldman Sachs analysts noted in a research note that the economic statistics released on Monday "pointed primarily to a contraction in private sector consumption and a deep contraction in investment, especially in real estate."

"Despite a significant increase in public sector consumption and a positive net trade contribution—with import declines outpacing export declines—the deep GDP contraction took place."
 

Official data revealed an annualised decline in private consumption of 26.9% quarter over quarter, and a near-68% decline in fixed investment as residential construction came to a halt due to a lack of workers—both Israelis due to military mobilisation and Palestinians—who have been largely prohibited from entering Israel since October 7.

Prior to that, Israel was the daily entry point for over 150,000 Palestinian labourers from the occupied West Bank, who were employed in a variety of fields, mostly agriculture and construction.

According to Liam Peach, senior emerging markets economist at London-based Capital Economics, Israel's GDP drop "was much worse than had been expected and highlights the extent of the hit from the Hamas attacks and the war in Gaza," Peach wrote in an analysis note.

"While a Q1 recovery appears to be in store, overall GDP growth for 2024 now appears likely to register at one of the lowest rates ever."

The fact that Israel has called up 300,000 men and women as military reservists to serve in Gaza and along its northern border with Hezbollah in Lebanon has a special impact on the country's high-tech economy.

The terror incident on October 7th, which killed over 1,200 people in Israel and was carried out by the Palestinian militant group Hamas, set off the mobilisation. More than 28,000 people have died in the blockaded area as a result of Israel's onslaught against the Gaza Strip and continuous bombing campaign, according to the health ministry in Gaza, which is controlled by Hamas.