Economic Indicator Plummets in Wake of Conflict - Bank of Israel's Combined Index Records Third Sharpest Drop Ever

Bank of Israel's combined index, a key gauge for predicting economic growth, experienced a profound decline of 1.1% in October. This alarming drop, the third steepest in the index's history, paints a grim picture of the economic landscape amid the ongoing conflict.

Comparisons with previous crises, including the onset of the COVID-19 pandemic in March 2020, reveal the severity of the situation. While that period witnessed a nearly 4% dip in the index, the only other instance of such a sharp decrease was in December 2008 during the peak of the global financial crisis, with a 1.05% reduction.

Notably, during times of security incidents, the index had never registered such a rapid fall. Even during Operation Solid Cliff and the Second Lebanon War, the declines were minimal, with decreases of about 0.05% and 0.51%, respectively.

The combined index, designed to anticipate Israel's growth rate through various indicators with readily available data, tells a tale of economic distress. A substantial 5.7% decrease in the import of consumer goods, a 6.1% contraction in the export of goods (excluding agriculture), and a significant 17.7% drop in credit card purchases reflect a pronounced economic slowdown.

Further, a 4.3% decline in electricity production and a reduction in the business sector's job vacancy rate from 3.6% in September to 3.2% in October add to the concerns raised by the index.

The Bank of Israel often updates the combined index retroactively as more data becomes available for additional components, such as the industrial production index, retail market and services redemption index, and the construction starts index.

These figures align with forecasts predicting negative growth in Israel for the fourth quarter of 2023. The economic downturn is attributed to the ongoing conflict, which has led to decreased consumption, employment, and private consumption. While the exact extent of the decline remains uncertain, the combined index data undeniably signal a significant weakening of economic activity in the country.