Israel Economic Forecast

GDP grew 3.0% in seasonally adjusted annualized terms in Q2, roughly double the OECD average, despite widespread protests and investor jitters over the government’s attempt to weaken the Supreme Court. Strong private and government spending drove the reading, with the former likely linked to lower inflation and unemployment and strong population growth. In contrast, exports and fixed investment declined, with tech investment falling particularly sharply. Turning to Q3, our panelists see another robust economic expansion, which should be spearheaded by strong consumer spending. However, Parliament’s recent approval of the first part of the judicial reform could be tempering investment. Looking at available data, employment and economic activity rose month on month in July, though operating conditions in the manufacturing sector deteriorated on declining export orders.

Inflation came in at 3.3% in July, down from June’s 4.2% and the weakest rate since January 2022. That said, inflation was still above the Central Bank’s 1.0–3.0% target range. Inflation is forecast to average slightly above its July level in the remainder of the year, propped up by substantial currency weakening in recent months and the uptick in oil prices so far in H2.