The Economist: Israel is OECDs third best economy in 2025

Many have been impressed that Israel was ranked third by UK journal “The Economist,” in its index examining OECD economies. And indeed, under the title “Which economy did best in 2025?,” Israel came in third behind Portugal and Ireland. But what is the significance of such a high ranking in this index, and is it a cause for celebration?

What indicators does the ranking examine?

The ranking is based on five parameters during the third quarter of 2025: First, the distance of inflation from the world’s shared target of 2% (it should be noted that the Bank of Israel sets the inflation target between 1% and 3%).

Second, the inflation breadth, – what percent of the basket of goods rose by more than 2% over the past year. This parameter is presented in comparison to last year. Third, growth, i.e. how much GDP increased compared with the previous year. Fourth, the change in stock market indices compared 2024. Fifth, the change in unemployment compared with last year.

The real achievement: recovery from chaos

What helped Israel reach such a successful place? First and foremost, the success in the stock market, where Israel enjoyed higher gains than any other country over the past year, with an increase of 53.3%, especially due to the performance of financial stocks.

Second, in GDP growth, where Israel reached fourth place with 3.5%. In the other indices, the performance is closer to the median: in distance from the inflation target, it is in 17th place out of 36 (with countries that are exactly on target in first place), with a gap of 1.2 percentage points; in unemployment, Israel is in 15th place with an improvement of 0.8%; and in inflation breadth, in 11th place with an improvement of 6.3 percentage points.

With the exception of the first parameter, the index does not examine the state of the economies at that point in time, but rather how they improved or regressed in relation to the previous year. That is, a strong economy may be in a situation where it can improve less (for example, if its inflation or unemployment rates are already low) than a weaker economy, which ultimately gives it the potential to receive a higher rating. Of course, improving from a low point is also not a given, but that does not mean that at the end of the improvement Israel is at a high point.

So what do the indicators say about the areas in which Israel was particularly strong? Let’s begin with economic growth. Look at GDP itself and not at how much it changed, using data from the Central Bureau of Statistics, this was the quarter in which GDP per capita (seasonally adjusted) returned to what it was before the war, in the third quarter of 2023. More broadly, because of the war, per capita growth in 2023 and 2024 was negative.

OECD sees sustained post-war growth in Israel

Israel life expectancy fourth highest in OECD

What about the successful performance of the stock market? Of course, it is a positive thing that it is recording gains, but as economists have explained in the past, the fact that the markets are in good shape does not necessarily mean that the state of the economy is also so, and the connection between them is not clear. The gains mean, first and foremost, that Israeli companies expect high profits.

In general, it is also worth seeing what “The Economist” itself writes about Israel: “Israel has continued its rapid recovery from the chaos of 2023.” In other words, the magazine does not necessarily see Israel as a leading economy, but rather exiting from the bad situation it entered in the first year of the current government’s term.

Published by Globes, Israel business news – en.globes.co.il – on December 25, 2025.

Source link