Israel's Economy Unexpectedly Shrinks As War On Iran Takes Toll

Israel’s economy slumped in the second quarter as the country’s 12-day war with Iran imposed a total shutdown on many businesses. 

Gross domestic product dropped 3.5% in annualized, seasonally adjusted terms, Israel’s Central Bureau for Statistics reported on Sunday, lower than the median estimate of 0.2% growth in a Bloomberg survey of six economists.  

Israel launched a surprise attack on Iran on June 13 in an attempt to damage the Islamic Republic’s nuclear program and other military facilities, which it said had become “an existential threat.” Iran retaliated with ballistic missile attacks that drove many Israelis to seek shelter.

The war with Iran had the biggest impact on private consumption expenditure, which dropped 4.1% , and gross fixed capital formation, which dropped 12.3%, the Central Bureau for Statistics said in a statement.

Israel’s central bank has projected a growth of 3.3% for the year and the finance ministry lowered its annual growth estimate to 3.1% last week. To meet these targets, the economy will need to pick up significantly over the second half of the year even as Israel says it’s preparing to take over Gaza City in the coming weeks for “the purpose of defeating Hamas.” 

The operation could displace 1 million Palestinians and will require the call-up of tens of thousands of reserve forces, further challenging the country’s economy.