(Bloomberg) — Israel experienced one of the deepest economic contractions in its history when the war against Hamas erupted, as the hostilities paralyzed businesses, forced people to evacuate their homes and caused the military to call up hundreds of thousands of reservists.
Gross domestic product shrank an annualized 19.4% in the final three months of last year, in seasonally-adjusted terms, according to preliminary figures released on Monday. That was worse than every estimate in a Bloomberg survey of analysts, whose median forecast was for a decline of 10.5%.
The shekel weakened slightly on the news and was trading 0.5% down at 3.626 per dollar at 3:09 p.m. in Tel Aviv, heading for its first drop in four days. Stocks initially pared advances, but soon extended them.
Though the conflict broke the economy’s momentum toward the end of 2023, GDP still expanded 2% in the full year, matching the projection by the central bank’s research department. The Bank of Israel’s growth estimate for 2024 is the same at 2%, while the Finance Ministry sees it at 1.6%.
The assessment is the first official tally of the war’s toll on GDP and captures the extent of the disruption that tore through the $520 billion economy in the aftermath of Hamas’s attacks on Oct. 7. Alongside the call-up of reservists that depleted roughly 8% of the workforce, it led to restrictions comparable to shutdowns imposed during the Covid-19 pandemic, causing a sudden crash in manufacturing, jolting consumption and briefly emptying schools, offices and construction sites.
Economic shockwaves from the war have been far more devastating in Palestinian territories, adding to the dire humanitarian crisis unfolding in Gaza. The International Monetary Fund has said the Mediterranean enclave saw “an almost complete collapse of activity” in the fourth quarter, estimating that cumulative GDP in Gaza and the West Bank plunged 6% in 2023.
Iran-backed Hamas, which is designated a terrorist organization by the US and the European Union, killed 1,200 people and abducted around 250 when its militants broke out of Gaza and rampaged through southern Israel on Oct. 7. Israel’s retaliatory offensive has killed some 29,000 people in Gaza, according to health officials in the Hamas-run territory. Israel has said it will launch a ground offensive on the Gaza city of Rafah unless hostages still held by Hamas are released soon.
Israel to Launch Rafah Attack Unless Hostages Home in March
Unprecedented measures by Israeli authorities contained the market fallout from the war, with the central bank pledging to sell as much as $30 billion from its reserves to support the local currency.
The war’s inflamed regional tensions and the fallout’s seen US based in Iraq, Syria and Jordan attacked, while the Houthis in Yemen are regularly assaulting ships around the Red Sea. Yet fears of a direct confrontation between Israel and Iran or a full-on war with Hezbollah militants based in Lebanon haven’t materialized. That’s provided some reassurance for investors worried about Israel’s public finances.
Israel’s government was downgraded for the first time ever, by Moody’s Investors Service, this month. That came as it plans to ramp up bond issuance to fund the conflict.
Even so, signs of stabilization have emerged. The central bank’s composite state of the economy index grew in December for the first time since August, reflecting what it said was a “gradual recovery.”
Consumer confidence rebounded toward the end of 2023 but remains far below its pre-war levels. The Israeli Purchasing Managers’ Index for December improved to 49.2, the best showing in months but still signaling contraction in industrial activity, according to Bank Hapoalim.
–With assistance from Joel Rinneby and Alisa Odenheimer.
(Updates with additional figures in final two paragraphs.)
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
