Israel’s Economy Plummets Off a Cliff Amid Gaza War

Hamas launched a surprise attack into southern Israel from Gaza last October in response to the Israeli occupation of Palestinian territories and the alleged “Judaization” of Jerusalem’s Al-Aqsa Mosque. Tel Aviv responded with a months-long aerial and ground war in Gaza. To date, over 1,450 Israelis and 30,000+ Palestinians have been killed.

Newly published data shows that Israel’s economy has dropped by nearly double digits in the wake of the Israel-Hamas war, with GDP shrinking by over 19 percent in annualized terms in the final quarter of 2023.

Central Bureau of Statistics figures released Monday showed a 19.4 percent decline in GDP between October to December, highlighting the fallout the ongoing conflict with the Palestinian militant group has had on consumer spending, productivity, investment and trade.

The Bureau attributed the drop in part to the fact that some 300,000 reservists were called up to man the war effort, leaving their day jobs vacant and the civilian economy losing out on a big chunk of both producer activity and consumer spending. With about 8 percent of the workforce pulled out of the economy, consumption fell 27 percent, while government spending increased 88 percent.

Assistance for 120,000+ Israelis evacuated from the country’s borders with Gaza and with Lebanon also had an impact, according to the statistics office, as did the drop in low-cost Palestinian day laborers shuttling to and from the West bank to work on construction projects and other jobs in Israel as a result of toughened security measures.

Imports and exports also saw a sharp drop, by 42 percent and 18 percent, respectively, with the Houthis’ campaign of hijacking and missile attacks against Israeli-affiliated commercial shipping in the Red Sea undoubtedly contributing to the losses.

Moody’s downgraded Israel’s credit rating from A1 to A2 last week, citing the impact the Gaza war has had in perceptions of the country’s ability to repay its debts, and updating its sovereign debt outlook to “negative.” Israeli finance minister Bezalel Smotrich blasted Moody's move, calling it a “political manifesto” that “did not include serious economic claims.”

Prime Minister Benjamin Netanyahu assured that Israel’s credit rating would “go back up the moment we win the war – and we will win the war.”

But the Central Bureau of Statistics’ figures appear to confirm that international creditors have reasons for concern, with the GDP drop on a scale this size unseen since 2020 and Israel’s heavy-handed coronavirus response, which saw the economy temporarily shrinking by nearly 30 percent.

Netanyahu’s optimistic predictions about the conflict in Gaza haven’t been matched by Israeli military intelligence, which circulated a memo to government officials last week saying that Hamas would survive even if the IDF dismantled its structures thanks to “authentic support” among Gaza residents.

Israel’s fortunes on the economic front have also been compromised by delays in US funding efforts, with a long-awaited $95 billion military aid package to Israel, Ukraine and Taiwan remaining stuck in Congress amid bickering over the Biden administration’s perceived failure to address the crisis at the US southern border. The bill, which includes $14 billion for Israel, has been slammed by House MAGA Republicans, who made no progress on its passage and left Washington for a two-week winter break last Thursday.

The US sends Israel over $3 billion in military support every year, with total aid topping $260 billion since 1948.