Israel's Economic Downturn: Factors Behind a Striking GDP Plunge
Updated: Sep 21
Updated: February 20, 2024 10:06 PM
By: Nilaris Roberts
(EYAD BABA/AFP/Getty Images)
Politics
Israel's economy experienced a substantial contraction of nearly 20% in the final quarter of 2023, according to official data. This decline, surpassing analysts' predictions, was primarily attributed to the conflict with Hamas in Gaza, prompting the mobilization of around 300,000 Israeli reservists. The economy also faced challenges due to the government's support for housing more than 120,000 evacuees from border areas, restrictions on Palestinian workers' movement, and increased military spending with the help of the U.S. of course.
(Israel Army Chief Herzi and IDF members/Times of Israel)
Various countries and international organizations have expressed concerns about the Israeli-Palestinian conflict and have called for a ceasefire at different times. It's important to note that diplomatic positions can evolve, and statements may change based on developments in the region. Some countries and organizations that have called for a ceasefire or expressed concern about the conflict include:
1. United Nations (UN): The UN, through its Secretary-General and various agencies, has consistently called for a cessation of hostilities and a peaceful resolution to the conflict.
2. United States: Different administrations may have varying approaches, but the U.S. government has often urged both sides to de-escalate tensions and work towards a ceasefire.
3. European Union (EU): The EU has called for a ceasefire and emphasized the need for a two-state solution to achieve a lasting peace between Israel and the Palestinians.
4. Arab League: Arab countries, collectively represented by the Arab League, have commonly called for a ceasefire and supported diplomatic efforts to address the conflict.
5. Individual Nations: Various nations, including but not limited to those in the Middle East (Hezbollah) and Europe, have made statements calling for an end to hostilities and a return to negotiations.
It's essential to stay updated on diplomatic developments, as positions can evolve based on the ongoing situation and international efforts to address the conflict.
Third UN Veto, US Hinders Ceasefire Resolution Amid Israel-Hamas Conflict (Reuters)
In the aftermath of the October 7 attack, government spending surged by 88%, while consumer spending plummeted by 27%. The import of goods and services dropped by 42%, and exports saw an 18% decline. Despite the economic setback, Israel still closed the year with a 2% increase in GDP compared to 2022, a significant drop from the 6.5% growth seen a year earlier.
(Source: Central Bureau of Statistics/Financial Times)
Moody's responded to the situation by downgrading Israel's sovereign rating from A1 to A2, citing concerns about the war's duration and its broader impact on the country's economy. The agency also revised Israel's debt outlook to negative, citing the risk of the conflict spreading to the northern front against Hizbollah.
Prime Minister Benjamin Netanyahu attributed the rating downgrade to the ongoing war, expressing confidence that the rating would rebound once victory was achieved. Despite the economic challenges, Israel's leader remains committed to pursuing "total victory" against Hamas, anticipating several more months of conflict. The per capita GDP, traditionally robust in Israel's technologically advanced economy, saw a marginal 0.1% decrease in 2023, accompanied by a 2.2% population growth.
Israeli leaders, including Prime Minister Benjamin Netanyahu, criticized the report. Netanyahu emphasized that the rating downgrade is solely attributed to the ongoing war, stating:
“The rating downgrade is not connected to the economy. It is entirely due to the fact that we are in a war. The rating will go back up the moment we win the war — and we will win the war.”
(New York Times)
Netanyahu, a long-serving leader, publicly
committed to pursuing "total victory" against Hamas, projecting that achieving this goal would take several more months at least.
Despite Israel's traditionally robust per capita GDP in its technologically advanced economy, which has historically exceeded that of the UK and France, the report highlighted a 0.1% decrease in 2023. This dip is noted as the population concurrently grew by 2.2%. The recent report from the agency resulted in Israel's debt outlook being downgraded to negative due to the potential risk of the war extending to Israel’s northern front against the Hezbollah militant group based in Lebanon.
Sources:
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