According to an OECD analysis released Wednesday, Israel’s economy is expected to improve well over the next two years if geopolitical tensions lessen. The analysis predicted a GDP growth of 3.4% in 2025 and 5.5% in 2026, following a slow 0.9% increase in 2024 due to conflicts with Hamas in Gaza and Hezbollah in Lebanon. Meanwhile, the Bank of Israel predicts that the economy will increase by 4% in 2025 and 4.5% in 2026.
OECD Secretary-General Mathias Cormann presented the biennial survey to Israel’s Social-Economic Cabinet, chaired by Finance Minister Bezalel Smotrich. Smotrich appreciated the study and acknowledged the challenges and opportunities it identified for maintaining long-term growth. To stabilise government finances, the OECD advocated structural reforms, such as tax increases on sugary drinks and congestion fines.
The analysis forecasted inflation of 3.7% in 2025, above the Bank of Israel’s goal range of 1-3%, before falling to 2.9% in 2026. It advised against lowering interest rates until inflation is under control. The OECD also emphasised the importance of labour market changes, pushing for core curricula in Arab and ultra-Orthodox schools and market liberalisation. It also advocated for further regulation in the AI-powered high-tech sector to ensure long-term economic viability.
