Israel's Economic Resilience Amidst Conflict: A 2024 Overview

Israel's economy grew by 1% in 2024 despite war in Gaza impacting investment and exports. Government spending on military conflicts primarily drove this growth. The war also affected the workforce as many were called up for military service. The inflation rate rose, preventing lower interest rates.

Israel's economy displayed unexpected resilience in 2024, recording a 1% growth rate, largely propelled by a surge in governmental military spending. This comes in the wake of the Gaza war against Hamas, which adversely affected investment and exports. The Central Bureau of Statistics revealed that growth surpassed its initial estimate of 0.6% despite being below 2023's 1.8% rate.

The conflict commenced following Hamas' cross-border attack on southern Israel in October 2023 and witnessed an escalation to a battle with Hezbollah in Lebanon. Ceasefires were eventually reached in January and November, respectively. Oz Shimoni, head of the bureau's macroeconomics division, attributed the growth to multiple components, primarily government expenses, while noting a reduced workforce due to military service obligations.

Despite a 0.6% decline in the business sector, the GDP saw gains in the fourth quarter. However, robust growth was hampered by a rising inflation rate, which increased to 3.8% in January. This will delay the Bank of Israel's plans to cut short-term interest rates. Looking ahead, the bank projects growth rates of 4% in 2025 and 4.5% in 2026.