The war between Iran and Israel has made headlines in the capital markets around the world. The success of the operation in Iran has lowered the risk premium in Israel and increased the interest of foreign investors in the Tel Aviv Stock Exchange. Now, with the end of the war, economists around the world are publishing optimistic forecasts for the Israeli economy.
Economists at Bank of America, one of the largest banks in the US, published a review of the Israeli economy and noted that “With the end of the conflicts in the Israeli region, the local economy has the potential to grow faster, as the problems of supply shortages will be resolved. It is likely that the shekel will appreciate as the risk premium decreases, which will help reduce inflationary pressures while GDP accelerates.”
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On interest rates, Bank of America stresses that it is changing its estimate that the Bank of Israel will cut interest rates by 25 basis points between July and September due to the war between Iran and Israel. However, they note, “In an environment where growth is weak, the currency is stable, and inflation is falling, the Bank of Israel may act sooner.” Bank of America believes the Bank of Israel’s base interest rate will be 4% (down from the current 4.5%) at the end of the year, and annual inflation for 2025 will be 2.7%, below the upper limit of the Bank of Israel’s annual inflation target range of 3%. .
On the fiscal deficit, Bank of Israel economists note that they still expect a budget deficit of 4.3% of GDP this year, but with upside risks due to higher military spending and reduced economic activity.
Published by Globes, Israel business news – en.globes.co.il – on June 26, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
