Israel’s Economy Grows Despite War Challenges in 2024

Israel’s economy showed resilience in 2024, growing by 1%, despite the ongoing conflict with Hamas and Iran-backed Hezbollah. The October-to-December period saw a slower pace of growth, but the economy still outperformed forecasts, driven largely by increased government spending to support military and civilian needs amidst the war.

In the fourth quarter, Israel’s gross domestic product (GDP) grew at an annualized rate of 2.5%, following a contraction in the second quarter and a solid 5.3% growth in the third quarter. However, when adjusted for population growth, GDP per capita contracted by 0.3%, continuing a downward trend from the previous year.

Government Spending and Economic Impact

The significant uptick in government spending, which rose by 13.7% in 2024, was driven by defense needs, with military spending soaring 43.3%. This spending boost helped fuel consumer demand, as many Israelis chose to stay in the country during the conflict, thus supporting local consumption. Consumer spending itself increased by 3.9%, showing that domestic demand remained robust despite global uncertainties.

However, the war and its repercussions led to a drop in business sector output, down 0.6%, and a sharp decline in fixed asset investments, which fell by 5.9%. Exports also suffered, with goods and services exports decreasing by 5.6% in 2024. Despite these challenges, the country’s economy showed signs of recovery in the final quarter of 2024, with consumer spending jumping 9.5% and investments in fixed assets climbing by 14.1%.

Looking Ahead: Post-War Economic Recovery

The 2024 economic growth surpassed initial expectations, with both the Bank of Israel and the Finance Ministry having forecast lower growth rates. The positive results from the fourth quarter, including growth in business output and government expenditure, suggest that Israel may be on track for a steady recovery as it navigates the complex challenges posed by ongoing conflicts.

With defense spending and domestic consumption leading the way, Israel’s economic future in the coming years will depend heavily on managing geopolitical risks while sustaining growth in key sectors such as technology, consumer goods, and infrastructure.