Panorama econòmic

Economic indicators

The Israeli economy has recorded one of the best performances of the OECD countries in recent years, mainly due to an increase in the working-age population and the participation rate; however, the evolving conflict following Hamas’ terrorist attacks on Israel on 7 October had a strong economic impact. Israel's economy grew by 3.1% in 2025, according to the Central Bureau of Statistics' National Accounts report. A rebound in exports and investment drove the recovery, with fixed investment up 8.1% and exports up 5.9%, while private consumption rose 2.6% year-on-year and public consumption increased 1.7% as conflict-related government spending eased. According to the OECD, growth is projected to reach 3.3% in 2026 and 5.6% in 2027, with demand composition shifting over time. Export growth picked up in 2025, rising 5.9%, including in high-tech services. Private consumption is expected to follow a similar trend. Government consumption will shift from supportive to restrictive. Investment will remain constrained by labour shortages, particularly in construction.

After a strong impulse, with the budget balance shifting from a surplus in 2022 to an estimated 7.5% of GDP deficit in 2024, the deficit is projected at 5.3% of GDP in 2026 and 4.2% in 2027 as fiscal policy continues to tighten. Despite continued high military spending in 2026, the government plans to reduce the deficit by raising taxes and cutting civilian expenditures. Tax hikes include permanent measures like a 1% increase in the VAT rate, alongside more challenging changes such as income-tax threshold freezes. Defence spending is expected to decrease from mid-2025, though it will remain a higher share of GDP than before the war. The central bank has lowered the policy interest rate to 4% and is expected to cut it further to 3.5% during 2027. Israel spent ILS 100 billion (28 billion USD) on military conflicts in 2024, according to the finance ministry. This spending has significantly increased government borrowing and the country's debt burden. The ratio of public debt to GDP rose to 68.5% at the end of 2025, up from 68% in 2024 (official figures). Over the past two years, the ratio has increased by more than 7 percentage points, mainly due to Israel’s wars with Palestinian militant groups Hamas in Gaza and Hezbollah in Lebanon. Meanwhile, Israel’s inflation eased to 2.4% in 2025, down from 3.2% in 2024, according to the Bank of Israel. Officials attribute the inflation spike to war-related supply issues, while the central bank notes that demand also contributes to keeping prices high. Inflation is projected at 2.3% in 2026, before easing further to 2.1% in 2027 as supply constraints improve (OECD data).

Israel has one of the highest living standards in the region, with salaries in line with the European average (the GDP per capita PPP was estimated at USD 54,446 in 2024 by the IMF). The poverty rate in Israel slightly decreased from 20.8% in 2022 to 20.7% in 2023. However, relative poverty remains among the highest in the OECD, despite a consistent downward trend over the past decade. The unemployment rate remained at historic lows, standing at 2.6% in February 2026 — the lowest since the 1970s (data CBS), which points to a tight labour market, leading to a severe shortage of workers. Since work permits for Palestinians were suspended, few new foreign workers (0.4% of employment) have entered Israel, compared to 4% of employment before the war.

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