According to the Central Bureau of Statistics, Israel's economy contracted by 5% between October and December due to the outbreak of conflict with Hamas in Gaza. The sharp decline in GDP was attributed to reduced spending, travel, and investment caused by the war. Private spending dropped by 26.3%, exports fell by 18.3%, and there was a 67.8% slide in investment in fixed assets, particularly in residential buildings.

Moreover, the construction sector faced challenges due to a lack of labor stemming from military call-ups and a decrease in Palestinian workers. Government spending, on war expenses and compensations, increased by 88.1%. Despite the downturn in the last quarter, Israel's economy managed to grow by 2% for the full year, falling short of the initial forecasted 3.5% expansion before the conflict erupted on 7 October.

Liam Peach, an economist at Capital Economics, noted that the contraction of Israel's economy was more severe than anticipated, underscoring the impact of the attacks and war in Gaza. The conflict has also affected trade, with Houthi rebels targeting cargo ships on the Red Sea en route to the Suez Canal, leading to a significant revenue drop estimated between 40% and 50%, as stated by Egypt's President Abdel Fattah al-Sisi.

The Red Sea, a crucial trade route, has been disrupted by the attacks attributed to Houthi rebels based in Yemen, causing concerns among shipping companies and prompting retaliatory strikes from the US and UK. The International Monetary Fund has cautioned against unrealistic spending cuts amidst the ongoing tensions. Globally, the disruption caused by the conflict in the region remains a significant concern for economic stability.