Israel-Hamas war takes its toll on Israel's economy

People walk past a wall with photographs of hostages, mostly Israeli civilians who were abducted during the Oct. 7, unprecedented Hamas attack on Israel, in Tel Aviv, Israel.
People walk past a wall with photographs of hostages, mostly Israeli civilians who were abducted during the Oct. 7, unprecedented Hamas attack on Israel, in Tel Aviv, Israel. Copyright Oded Balilty/Copyright 2024 The AP. All rights reserved.
By Doloresz Katanich
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Israel's economic output plummeted in the final three months of 2023, mainly driven by a large drop in private consumption.

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Israel's economy has been badly affected by its war with Hamas following the attack on Israel on 7 October 2023, with output in the final three months of 2023 falling a dramatic 19.4% compared with the same period of 2022.

The fall was more than market analysts had expected and marks the biggest contraction in almost four years, according to Israel's Central Bureau of Statistics' first estimate.

The decline was partially due to a dive in business activity as workers were called up for military duty and Palestinian employees were denied entry to Israel.

The major driver of the contraction was private consumption, which shrank by 26.9%, while business investment plunged by 67.8%. 

Exports declined by 18.3% and imports slipped by 42%. 

Meanwhile, government spending made up some of the losses, jumping by 88.1%, mainly on war expenses. 

Israel’s economy for the year of 2023 was up 2%, according to the statistics office, but down on 2022's figure of 6.5%. 

The Tel Aviv Stock Exchange did not appear to show signs of distress, with the benchmark index TA-35 closing with a slight gain of around 1%.

Moody's, one of the world's largest credit rating agencies, last week lowered Israel's credit rating, saying: "The negative impact on the country's institutions and public finances ... may prove more severe than Moody's currently assesses."

The ratings are a guide for investors over assessing the risk of a country's bonds, based on factors such as economic perspectives and political risk.

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