Israel’s economy grew 3.1% in 2025

Israel’s GDP grew by 3.1% in 2025, the Central Bureau of Statistics reports in its first assessment. This was above expectations with the latest main forecasts predicting 2.8%-2.9% growth.

3.1% growth of is a major improvement over 2024, when the economy grew by only 1% during the height of the war, but it is still a moderate growth rate relative to the potential of the Israeli economy.

GDP per capita increased by 1.7%, after two consecutive years of decline. This index more realistically reflects the standard of living for the average Israeli, compared to the gross domestic product figure, which ignores population growth in Israel, which has many children. GDP per capita in 2025 was NIS 208,900. For comparison, according to OECD forecasts, GDP per capita in OECD countries will increase by an average of 1.3% this year.

2025 saw unusual volatility in the economy. After a first quarter of moderate recovery, the second quarter marked a contraction of 4.3% in annual terms, due to the war with Iran and extensive mobilization of army reserves, which damaged business activity. The sharp recovery came in the third quarter with a 12.7% jump in GDP, and in the fourth quarter – when the ceasefire was already in effect, the economy grew by 4%.

Business output, which reflects economic activity, grew by 3.4% in 2025. The last quarter raised the average with a figure of 7.1% in annual terms.

Sectoral data indicate a recovery in sectors that were severely affected during the war. The manufacturing, mining and quarrying sector grew by 9.1%, after growth of only 2.2% in 2024. The construction industry is still in crisis, but at least the raw data is encouraging. The industry recorded growth of 8.9%, after a sharp contraction of 12.4% in 2024 due to the absence of foreign workers and a shortage of manpower. Investments in residential construction jumped by 16% in 2025 after a drop of 17.4% in 2024. The information and communications industry (the tech sector) grew by 4.7% – a correction after a decline of 8% in 2024.

Moderate increase in private consumption

Private consumption rose by 2.6%, a more moderate pace than the 3.9% increase in 2024. The figure hides an interesting split. Current consumption per capita (food, housing, services) rose by 1.6%, but spending on durable goods (such as electrical appliances, furniture and vehicles) fell by 10%.

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Fixed asset investments jumped by 8.1%, after a 5.5% decline in 2024. This is attributed to business optimism. Exports also recovered with a 6.1% increase (excluding diamonds and startups), after a 3.7% decline in the previous year. Startup exports rose 7.2%.

State spending rose by only 1.7%, compared with a jump of 11.8% in 2024. The figure reflects the moderation in defense spending, which fell by 1.3% after soaring by 36% in 2024.

“This exceptional increase in 2024 was due to the government’s large defense spending following the war, including expenses for reservist benefits,” the Central Bureau of Statistics said.

However, the Central Bank stressed, “In 2025, current defense spending is still high, and therefore the year was characterized by only a moderate decrease compared with the previous year.”

The growth figure of 3.1% is higher than the latest main forecasts. Last November the Ministry of Finance estimated growth of 2.8%, and the Bank of Israel in its January forecast also predicted 2.8%. The International Monetary Fund (IMF) published a growth forecast of 2.9% earlier this month.

And what will happen in 2026?

A continued recovery is forecast for 2026, assuming that the security situation remains calm. The Bank of Israel and the Ministry of Finance predict growth of 5.2%, credit ratings agency Moody’s recently estimated growth of 5%, and the IMF sees growth of 4.8% in 2026.

The forecasts are based on an assumption of an economic rebound, recovery in investments and a labor market that will return to full functioning following reduced mobilization of reservists.

The GDP growth figure is still a first estimate by the Central Bureau of Statistics, based on partial data, and it may be adjusted. The second GDP estimate will be published on March 10.

Published by Globes, Israel business news – en.globes.co.il – on February 16, 2026.

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