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The Israeli economy continues to defy gravity, according to the most recent OECD survey, released today. The OECD starts out by remarking how resilient the Israeli economy has become, right after the shock of October 7 attack by Hamas and to the subsequent attacks from Lebanon and Iran. Despite considerable internal political turmoil, these past 18 months, the country continues to exhibit” sound fiscal position before the war, deft monetary management, a stable financial system and strong growth potential owing to high employment rates and a vibrant high-tech sector.”

The OECD’s forecast calls for a relatively quick snapback from the war-induced dislocations experienced after October 7. National income this year is expected to expand by 3.4%, followed by an even stronger performance of 5.5% in 2026. Government consumption will dapper off considerably, as the extraordinary military requirements are no longer . Domestic capital formation, both residential and non-residential, suffered greatly during the war, but now is posed to shoot up by 8.7% in 2025 and a further 4.7% in 2026. The rapid expansion in economic activity will result in a very tight labour market, as the unemployment rate is expected to drop to 1.6%.

Crucial to the recovery is the restoration of an improved fiscal balance. The government deficit is forecasted to drop from 8.2% of GDP in 2024 to 3.8% in 2026. The Government debt- to- GDP  ratio remains steady at 66%. Rating agencies have downgraded Israeli credit worthiness, more in response to the concern that domestic politics may have a negative impact on investors. The economy, nonetheless, exhibits better performance than the rating agencies will concede.

OECD Forecasts. Israel 2025-2026

The OECD rests much of its case on the strength of  Israel’s  high-tech sector, particularly those firms specializing in Artificial Intelligence (AI).  Venture capital AI funding in Israel , measured as a percent of GDP, is the highest in the world. The organization notes that the links between the military and universities allow Israel to maintain its leadership in the tech world.
 

Finally, Israel enjoys a very healthy surplus on the current account and continues to attract record levels of foreign direct investment to fuel its high-tech sector.

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