The shekel experienced a downturn in the local foreign exchange market on Tuesday, following a day of declines driven by subdued trading volumes amid Wall Street holiday closures. This morning, the greenback strengthened by 0.7%, pushing the dollar above NIS 3.64, while the euro also saw gains, reaching NIS 3.93.

These movements come in the wake of concerning economic indicators, notably the recent report from the Central Bureau of Statistics revealing a significant 19.4% drop in GDP for the fourth quarter of 2023 – coinciding with the onset of the war with Hamas.

This decline in GDP reflects substantial contractions across key economic metrics, including a 70% reduction in investments, 42% decrease in imports, 27% downturn in private consumption, and an 18% slide in exports. Conversely, public consumption expenditure witnessed a notable 88% increase, indicative of government efforts to stimulate economic activity amidst challenging circumstances.

However, analysts urge caution in interpreting these figures, emphasizing that the annualized drop in GDP may overstate the actual economic impact. Yoni Penning, chief transaction strategist at Bank Mizrahi Tefahot, highlights that when viewed in quarterly terms, the decline is closer to 5%, which aligns with initial expectations considering the wartime conditions.

Penning further notes that the current GDP data primarily reflects economic conditions from the earlier part of the quarter, with December showing signs of recovery as security threats abated. Consequently, he anticipates that forthcoming GDP updates may better capture the improving economic landscape.

While the GDP contraction underscores the economic challenges posed by the ongoing conflict, there are indications of resilience and potential for recovery. As the situation evolves, stakeholders will closely monitor economic data for insights into the trajectory of Israel’s economy and the effectiveness of policy responses in mitigating adverse effects.

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