Economy records sharpest contraction since Q2 2020 in Q4

GDP fell 19.4% in seasonally adjusted annualized rate terms (SAAR) in the fourth quarter of 2023, contrasting the 1.8% expansion recorded in the third quarter and a larger contraction than markets were expecting. Q4's reading marked the worst result since Q2 2020. The downturn reflected contractions in private consumption, fixed investment and exports; all three indicators were hit hard by the conflict with Hamas. In contrast, government spending surged due to war-related expenditure. On an annual basis, economic activity dropped 4.1% in Q4, contrasting the previous period's 3.6% growth. Q4's reading marked the largest drop since Q2 2020.

Private consumption fell 26.9% SAAR in Q4 compared to a 1.2% expansion in Q3. Moreover, fixed investment dropped at a quicker rate of 67.8% in Q4, compared to the 1.5% decrease logged in the prior quarter. Government consumption, meanwhile, grew at the fastest pace on record, expanding 88.1% (Q3: +7.9% SAAR). On the external front, exports of goods and services contracted 18.3% in Q4, marking the worst reading since Q2 2020 (Q3: +3.6% SAAR). In addition, imports of goods and services deteriorated, contracting 42.4% in Q4 (Q3: +2.3% SAAR).

Our Consensus is for growth to return in annual and quarterly terms in Q1 2024, though the ongoing war against Hamas will continue to weigh on activity somewhat.

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