The Israeli economy recovered from some of the worst effects of the war in Gaza at the start of the year, returning to growth after a heavy setback in the final months of 2023.
The Central Bureau of Statistics said in an initial estimate on Thursday that the Israel GDP grew at an annualised rate of 14.1% in Q1 2024 from the prior three months, just shy of a Reuters consensus of 15.3%.
The rise marked a significant recovery from a contraction of close to 22% in the last quarter of 2023, which followed Palestinian group Hamas' October 7 cross-border attack on southern Israel and the IDF’s subsequent ground invasion of Gaza.
The shock derailed nearly two years of continuous growth in the Israeli economy. Israel’s military operation in Gaza has continued to persist into 2024, and attacks by both military and settlers in the occupied West Bank have escalated.
The war has precipitated severe labour shortages within Israel, compounded by the mobilization of Israeli citizens for military service and the barring of Palestinian workers from entering the country.
These disruptions have not only affected Israel but have also severely constrained economic activity in the West Bank, leading to a downturn in incomes and an economic crisis, as detailed by U.N. Development Program reports cited by WSJ reporter Joshua Kirby.
Despite the ongoing war, which includes continued Israeli operations in Gaza and escalating violence in the West Bank, certain economic indicators such as private consumption and investment have shown signs of recovery, though they have not returned to pre-war levels. Military spending continues to inflate public consumption figures.
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The Bank of Israel estimates the war could cost approximately $53 billion between 2023 and 2025, with the majority going to defence spending.
The central bank's latest forecast anticipates moderate Israel GDP growth of 2% for 2024, slightly above IMF predictions.
WSJ cited Liam Peach, an economist with Capital Economics, as saying that the Israel's GDP should keep growing through the second quarter, driven by stronger consumer spending.
That momentum could, however, be derailed by a raising of the military stakes, the central bank warned in its April forecasts. At the time, the Bank of Israel said:
“An expansion of the war on the northern front [would be] expected to have a material negative macroeconomic impact”.
The New Israeli Shekel (ILS) has seen volatile trading amid the war, with the Bank of Israel stepping in to prop up the currency as it slid versus the U.S. dollar late last year.
The Israeli shekel was notably one of the world’s best-performing currencies against the U.S. dollar last November, as it surged close to 8.5% vs. USD from its late-October low, erasing losses incurred during the outbreak of the Israel-Hamas war.
At the time of writing on May 16, the USD to ILS saw the shekel slip close to 0.6% against the greenback, trading at 3.69 as of 12:50 GMT.
Bank policymakers have reduced interest rates only once following the October attacks, amid worries about potential inflation spikes.
According to economist Liam Peach, the resurgence in Israel’s domestic demand, coupled with persistently high inflation, suggests further rate cuts are unlikely in the near future.
Meanwhile, fresh economic concerns have emerged as the war continues and international calls for Israel to minimize civilian casualties grow. Earlier this month, Turkey announced a suspension of trade with Israel pending the delivery of additional humanitarian aid to Gaza.
Although Turkey is not a major trading partner for Israel, this embargo could impact the latter’s construction industry, which relies on Turkish supplies and could drive up food inflation, as per economists cited by WSJ.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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