Post Iranian War The Israeli Economy Soars
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Like a race horse out of the gate, the Israeli economy got off to a great start once the 12-day Iranian war ended. On an annualized basis, GDP grew at 12.4% for the period of July-September 2025. This surge was on the heels of a 4.3% decline in Q2, in which the economy took a brief hit during the Iranian war from incoming missiles. This Q3 performance exceeded a consensus forecast of 8%.
The major force behind this strong performance was the private sector at home and in the export markets.Government spending increased at a relatively modest pace of 4%, leaving lots of room for the private sector to drive the economy. Coming from such a low, negative performance in Q2, the Q3 numbers are not expected to hold up at theseextraordinary high rates in Q4 or even into 2026. Nevertheless, consumers and business have come back in full force and the expectations are for a widespread continuation of growth. It is little wonder that the Tel Aviv share indices have recorded all-time highs and the Israeli shekel appreciated by 10% against a basket of currencies to reach a 3 year peak.
Key Details for 2025 Q3
- Growth Rate (annualized) of 12.4%
- Private consumption grew by 23%
- .Exports expanded by 23%
- Private investment grew by 37%
- Public spending grew at 4%
These results were based on expectations bymajor international agencies, such as theOECD which forecasts that the Israeli economy will record a growth rate of 3.4% for all of 2025 and a faster growth rate of 5.5% in 2026. This performance is well above the average growth rate for the global economy, set at 3.1% in 2025 and 3% 2026.
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Consensus Forecasts for the Israeli Economy |
||||||
|
2023 |
2024 |
2025* |
2026 * |
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|
GDP |
2.0% |
1.0% |
2.5% |
5.0% |
||
|
Inflation |
4.0% |
3.0% |
3.0% |
2.0% |
||
|
Unemployment |
3.0% |
3.0% |
3.0% |
3.0% |
||
|
*forecasted |
With such anacceleration in growth, one would expect that inflation would re-emerge.However, Q3 inflation clocked in at 2.5% and it is expected to remain well contained. In fact, the investment community is speculating that the Bank of Israel will lower its rate from 4.5% to 3.75% to ensure that growth will continue and also stem any sudden rise in the value of the shekel.
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