London, Feb 19 : Israel's output contracted sharply in the final three months of 2023, falling for the first time in nearly two years, as the war with Hamas takes a heavy toll on the economy, a media report said.

The country's Gross Domestic Product (GDP) plunged 19.4 per cent on an annualised basis compared to the July-to-September quarter, when it grew by a revised 1.8 per cent, Israel's Central Bureau of Statistics said on Monday in its initial estimate, CNN reported

The contraction is the latest piece of bad economic news for Israel, which has been waging a war in Gaza aimed at destroying the Hamas after the latter's October 7 attack on the country, the report said.

The worse-than-expected decline was driven by a 26.9 per sent drop in private consumption, as confidence plummeted following the attacks and households cut back on spending.

Fixed investment by businesses tumbled 67.8 per sent, 'driven by a near-halt in residential building resulting from military call-ups and a reduction in Palestinian workers", according to Liam Peach, senior emerging markets economist at Capital Economics. Exports declined 18.3. per sent.

'While a recovery looks set to take hold in (the first quarter), GDP growth over 2024 as a whole now looks likely to post one of its weakest rates on record,' Peach said in a note on Monday, CNN reported.

The conflict is expected to cost Israel around 255 billion shekels ($70.3 billion) by the end of 2025, equivalent to around 13 per sent of GDP, according to the Bank of Israel.

In November 2023, the central bank had cut its forecast for GDP growth this year to 2 per sent, from an estimate of per sent % on the eve of the war.

And earlier this month, Moody's delivered Israel's first-ever credit rating downgrade, citing elevated political risk and deteriorating public finances stemming from the war, CNN reported.

The ratings agency said Israel's economy had so far 'managed the fallout from the conflict reasonably well", with some indicators pointing to a 'swift rebound over the past three months".

/IANS