Israel’s GDP contracted 19.4 percent during the last quarter of 2023 amid the invasion of the Palestinian enclave, according to data released by the Israeli Central Bureau of Statistics.
This large decline in Israel’s economy was influenced by several factors, said Dr. Nasir Iqbal, associate professor at the Pakistan Institute of Development Economics.
“The ongoing war contributed to the decline of Israel's economic activity. Secondly, the psychological impact of war also has a significant impact on decreasing consumption patterns,” he explained.
“If we look into the spending pattern and psychological well-being of the citizens of Israel, they are facing a lot of issues in terms of this psychological warfare of the economy and that led to a significant decline in economic activity,” he said.
Another factor, according to Dr. Iqbal, is the international boycott of “most of the products produced by and linked with Israel” by people who perceive Tel Aviv’s actions in the Gaza Strip negatively.
Dr. Iqbal went on to note how the war has impacted Israel's debt given that estimates suggest that it has cost Tel Aviv's economy around $58 billion so far.
“This decline in economic activity is ultimately a direct or indirect implication of the war. As we know around $58 billion [has been used] by Israel to accommodate the war expenses,” Dr. Iqbal added. “This again has a lot of implications for the overall economic activity of the country. For example, it has a psychological impact on the well-being of the human being and they decrease their consumption pattern.”
Meanwhile, Israel does enjoy a “comparative advantage in terms of continuing this war,” the scholar suggested, which comes in the form of “support from the US in terms of bailouts,” not to mention that the United States and several other “big players” also provide diplomatic support to Tel Aviv.
Finally, Dr. Iqbal argued that Israel's economy has felt the pinch from other Middle Eastern states who cooperate with Tel Aviv “on a number of economic and other issues.”
“Another important component of this war is that it will remain in the region until there is a universal solution to it. So we have to look into the big players and those can play a very active role in this scenario. They must come forward and offer a peaceful solution to this war,” he surmised.