Israel’s economy is heading for a rebound next year, the OECD said on Tuesday, projecting stronger growth than local institutions expect — but warning that the recovery rests on shaky ground and could falter quickly if the ceasefire with Hamas unravels.
The report, released just weeks after hostages were freed and fighting ended under the October truce, points to a country trying to rebuild confidence after two turbulent years.
OECD Sees Growth Picking Up Faster Than Local Forecasts
The OECD’s new growth outlook lands with a mix of relief and caution.
A two-sentence opener that mirrors the moment.
The organization expects Israel’s GDP to rise by 3.3% in 2025 and 4.9% in 2026, outpacing the group’s global projections of 3.2% and 2.9% for the same period.
Those numbers are slightly rosier than the Bank of Israel, which sees 2.5% growth next year, and the Finance Ministry, which forecasts 2.8%.
The OECD’s optimism is rooted in one belief: private-sector activity is ready to wake up after months of disruption.
One-line paragraph for effect.
It says investment that piled up during the war will restart, households will begin spending again and businesses will shift from crisis-mode back to growth.
The organization wrote that improved security conditions “will support private consumption,” while investment is expected to surge due to postponed projects.
And yet the shadow of conflict hangs heavily over this outlook.
War Costs Still Burden the Fiscal Picture
Israel’s economy grew by about 1% in 2024, a steep drop from 1.8% in 2023 and 6.3% in 2022, the year before Hamas’s October 7 assault triggered a prolonged conflict.
These numbers tell their own story.
Government spending ballooned due to simultaneous conflicts with Hamas in Gaza and Hezbollah along the Lebanese border. Military costs rose sharply, and civilian support programs expanded to help displaced residents, reservists and damaged sectors.
A one-sentence interjection.
That spending didn’t come cheap.
The OECD warns that fiscal policy now needs discipline — something easier said than done when political pressures grow louder after war. It highlights rising concerns about Israel’s tax strategy, including whether revenue collection can keep pace with spending obligations.
A short paragraph for rhythm.
In plain terms: the books are widening, and someone eventually has to pay for it.
Ceasefire Stability Is the Biggest Variable
The ceasefire signed in October ended two years of intense conflict, but experts quoted in the report stress that Israel’s economic path is inseparable from its security environment.
The first phase of the US-brokered deal with Hamas — hostage releases and initial Israeli withdrawals — is nearly complete, though two bodies have yet to be returned.
But the next phase remains blurry.
Washington’s broader plan calls for Israel to pull back further from Gaza, Hamas to disarm and hand the territory to a transitional authority backed by a multinational peacekeeping force.
One-line paragraph to keep the tension clear.
None of that is guaranteed.
The OECD warns that any breakdown in the agreement could chill consumer confidence, stall export recovery and force the government back into emergency spending.
And that risk is far from hypothetical, given how fragile the political environment around Gaza remains.
Private Sector Expected to Lead the Rebound
With wartime spending expected to ease, the OECD says the private sector becomes the main engine of growth in the next two years.
That marks a sharp shift from 2023–2024, when most economic momentum came from public spending.
The report outlines a few reasons for this expectation:
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Companies paused expansions during the war and now face a backlog of investments waiting to resume.
Meanwhile, household psychology is changing too.
The ceasefire appears to have reduced the anxiety that kept many Israelis from major purchases, travel or long-term financial commitments.
Even tourism, one of the hardest-hit sectors, shows early signs of awakening — though still painfully slow. The OECD notes that areas such as Jerusalem’s Old City, once nearly deserted, are inching back to life as foreign visitors cautiously return.
Key Numbers That Show Israel’s Recent Economic Strain
Here’s a quick snapshot of Israel’s economic performance across the past three years based on information in the OECD’s assessment:
| Year | GDP Growth | Notes |
|---|---|---|
| 2022 | 6.3% | Pre-war momentum, strong exports |
| 2023 | 1.8% | Slowing activity ahead of conflict |
| 2024 | ~1% | War disruptions, high defense spending |
| 2025 Forecast | 3.3% | Expected rebound post-ceasefire |
| 2026 Forecast | 4.9% | Continued recovery |
A single-sentence paragraph.
The contrast between 2022 and 2024 is as stark as any chart could show.
This table also highlights why policymakers in Israel face growing pressure to stabilize security and fiscal conditions simultaneously.
Risks Still Hover Over the Recovery Narrative
Behind the optimism sits a long list of vulnerabilities.
And some of them aren’t within Israel’s control.
Exports were hit hard during the conflict, especially in high-tech and industrial sectors that rely on global demand and steady supply chains. If geopolitical tensions flare again, foreign investors could once more pull back.
Another concern is Israel’s inflation path.
Wartime supply disruptions, rising import costs and emergency spending pushed prices higher at a time when households were already strained.
The OECD stresses that credible fiscal management — including decisions on taxation and spending priorities — will be crucial in restoring confidence.
One-line rhythm rest.
Weak budgets don’t mix well with ambitious recovery timelines.
The organization adds that failure to curtail spending after the war could widen deficits and limit the government’s ability to support long-term growth plans.
