Israel's economy suffers from the Israel-Gaza war

Israel's economic output fell in the fourth quarter of 2023 due to a sharp drop in private consumption.

Following the attack on Israel on October 7, 2023, Israel's economy has been severely impacted by the war with Hamas. As a result, the country's output in the final three months of 2023 has dropped by a staggering 19.4% compared to the same period in 2022.

By the initial estimation provided by Israel's Central Bureau of Statistics, the decline was greater than market analysts had anticipated and represents the most significant contraction in almost four years.

There was a drop in business activity as a result of workers being called up for military duty and Palestinian employees being denied entry into Israel, which contributed to the decline in business activity.

The most significant contributor to the contraction was the decline in private consumption, which was 26.9% lower than before. In comparison, the decline in business investment was 67.8% lower.

The decrease in exports was 18.3%, while the decline in imports was 42%.  

On the other hand, the government's spending made up for some of the losses, increasing by 88.1%, primarily due to the costs of the war. 

According to the statistics office, Israel's economy experienced growth of 2% in the year 2023, which was lower than the figure of 6.5% recorded in 2022. 

The benchmark index TA-35 finished the day with a slight gain of approximately one per cent, indicating that the Tel Aviv Stock Exchange did not appear to be experiencing any signs of distress.

One of the largest credit rating agencies in the world, Moody's, lowered Israel's credit rating last week, citing the following statement: "The negative impact on the country's institutions and public finances... may prove to be more severe than Moody's currently assesses."

For investors, the ratings serve as a guide for evaluating the risk associated with a country's bonds. These ratings are based on various factors, including economic perspectives and political risk.