Israel’s economy is expected to grow 3.1% in 2025, recovering from a 1% pace in 2024, according to official data on Monday, with growth accelerating sharply as long as the fragile Gaza ceasefire remains in place.
Growth last year was driven by a 7.1% increase in investment and a 5.9% increase in exports, along with a modest increase in private consumption. Economists said heavy state spending during the two-year war in Gaza, especially defense spending, further boosted the economy.
“The economy is recovering,” said Yonny Fanning, chief strategist at Mizrahi Tefahot Bank. “Indicators for the first quarter of 2026 are also positive. You can see that in things like the trade balance data. So I think this … lays the foundations for a continued recovery.”
In 2025, Israel’s economy grew by 1.7%, exceeding the OECD average and 2% growth by the United States. It also beat the Bank of Israel’s forecast of 2.8%. The central bank expects growth to reach 5.2% this year.
“What we’re seeing now is post-war excess demand, coupled with an increase in supply, for example in real estate. So we’re seeing that in investment, and we should see more of that in 2026,” Fanning said.
The per capita growth rate in 2025 was 1.7%.
Gross domestic product (GDP) in the fourth quarter rose at an annualized rate of 4.0% compared to the previous quarter, as exports surged 33% following the ceasefire between Israel and the Palestinian militant group Hamas in October.
Jonathan Katz, chief economist at Leader Capital Markets, said: “This was a relatively strong performance, driven by business sector activity, driven by a strong contribution from net exports.”
A Reuters survey of economists predicted growth would be at an annual rate of 2.6% in the final three months of 2025.
GDP for the third quarter has been revised to an annualized increase of 12.7% from the previous forecast of 11.1%.
The GDP figures follow data released on Sunday showing that Israel’s annual inflation rate fell in January to 1.8% from 2.6% in December, the lowest level since June 2021, increasing pressure on the Bank of Israel to cut short-term interest rates for the third consecutive time at next week’s meeting.
“Most people (in the market) don’t expect inflation to hold steady,” Fanning said after the inflation data.
The shekel was flat at 3.09 to the dollar, close to a 30-year high reached in early February. The Tel Aviv stock index rose 0.3%.
(Reporting by Stephen Scheer; Editing by Alex Richardson and Ross Russell)
