Investing.com -- The Israeli economy experienced a slowdown in its GDP growth in the fourth quarter, dropping to an annualized rate of 2.5%. This figure is down from the 5.3% growth reported in the third quarter, and it falls short of both the consensus forecast of 5.7%.
Following this slowdown, the size of the economy is now 0.7% smaller than it was before the Gaza war erupted in 2023.
Throughout 2024, Israel's economy expanded by a mere 1.0%. The data revealed that while private consumption remained strong, increasing by an annualized 9.5%, investment growth decelerated and stayed at a very low level.
Net exports also continued to hinder the economy, as the growth rate of exports lagged behind that of imports.
Analysts at Capital Economics noted that the slowdown in economic activity was more pronounced than anticipated due to escalating tensions with Hezbollah in the previous quarter.
They suggested that the recent ceasefires with Hezbollah in November 2024 and Hamas in January 2025 could provide some economic support in the early part of 2025. However, they also warned about the potential risk if these agreements were to collapse.
In addition, the analysts pointed out that consumer confidence increased last month, indicating a potential resurgence in postponed investment. Despite these positive signs, the uncertainty surrounding the geopolitical situation continues to loom over the economic outlook.
Capital Economics forecasts a 4.5% expansion of the Israeli economy in 2025, an estimate that is above the consensus. Yet, they caution that the delicate nature of the ongoing ceasefires suggests that the risks lean towards the downside.
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