Israel's GDP shrinks in last quarter of 2023 amid Gaza war

Israel’s Central Bureau of Statistics releases new report showing growth per capita dramatically decreased while deficit continues growing

Israel’s Central Bureau of Statistics (CBS) released a report Monday on the estimate of Israel’s 4th quarter of 2023, showing the country’s gross domestic product (GDP) rose by a low rate of only 2% during the year – marking a negative growth of 0.1% per capita amid the war in Gaza. This is compared to a growth of 6.5% in the country’s GDP in 2022.
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The downtrend during the fourth quarter was directly related to the start of the war in Gaza, which broke out on October 7, and was mainly influenced by extensive IDF reserve mobilization, payments for Israeli evacuees according to government plans, and a labor shortage in the construction sector.
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ישיבת ממשלה
ישיבת ממשלה
Finance Minister Bezalel Smotrich and Prime Minister Benjamin Netanyahu
(Photo: Haim Tzach, GPO)
According to the CBS, Israel’s real gross domestic product rose by 2.0% in 2023, following an increase of 6.5% in 2022. Israel’s population grew in 2023 by 2.2%, meaning the gross domestic product per capita decreased by 0.1% after rising by 4.4% in 2022.
The GDP per capita in 2023 amounted to 191,500 shekels at current prices. Seasonally adjusted data on GDP growth by quarters show that, in the fourth quarter of 2023, the country’s gross domestic product decreased by 19.4% on an annual basis - a particularly unusual decline.
In fact, the fourth-quarter data dragged down the entire year of 2023, last year's growth was not particularly high against the backdrop of social instability in Israel even prior to the war. Forecasts prior to the war estimated a 3.4% growth throughout 2023 (reasonable growth, but still far from realizing Israel's growth potential), which has only amounted to 2%, according to updated forecasts from the Finance Ministry and the Bank of Israel.
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Israeli bills
(Photo: Reuters)
For relevant comparisons to other countries one refers to growth per capita - which recorded a decrease of 0.1% in 2023. The average growth per capita in the OECD stood at 1.2% last year, with Spain leading per capita growth at 2.7%, followed by Japan at 2.2% and the U.S. at 1.7%. Ireland recorded the lowest per capita growth among OECD countries with 1.8%, and Germany recorded a similar per capita growth as Israel with 0.1%.

The decrease in private consumption

Private consumption expenditure decreased by 0.7% in 2023 after rising by 7.4% in 2022. Private consumption per capita dropped by 2.8% in 2023.
In contrast to private consumption, public consumption expenditure increased by 8.3% in 2023, compared to a rise of 0.1% in 2022. Government consumption expenditure increased by 3.8%. The significant increase reflects the government's exceptional expenditures following the war in Gaza.
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פעילתות צה"ל ב עזה
פעילתות צה"ל ב עזה
IDF forces in Gaza
(Photo: IDF Spokesperson's Unit)
National defense and security expenditure increased by 26.6%. This increase comes due to the numerous security expenditures incurred by the government following the start of the war, including expenses for IDF reserve service compensation.
Imports of goods and services decreased by 6.9% in 2023, after rising by 12% in 2022. Exports of goods and services also decreased in 2023 by 1.1%, after a rise of 8.6% in 2022.

The deficit in 2023

According to the CBS, the government’s current balance amounted to a deficit of 80.5 billion shekels in 2023, compared to a surplus of 4.4 billion shekels in 2022. The sharp increase in the deficit is mainly due to the government's increased expenditures and, conversely, a decrease in its tax revenues due to the war. The deficit in 2023 amounted to 4.3% of the GDP, compared to a surplus of 0.2% in 2022 and a deficit of 3.4% in 2021.
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