Treasury cuts Israel’s 2025 growth forecast

The Ministry of Finance chief economist today cut the 2025 GDP growth forecast from 3.6% to 3.1%, following the operation in Iran and the extension of the fighting in Gaza.

The latest forecast assumes that the intense fighting in Gaza will continue until the end of the third quarter – that is, it will end in just a month and a half. This is in contradiction to the new cabinet’s decision to occupy Gaza City in an operation that is expected to last at least six months and cost tens of billions of shekels. Thus, although the Ministry of Finance has cut the forecast, it has remained overly optimistic in its estimates and the forecast was already out of date at the time of publication.

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This is the second consecutive cut in the growth forecast for 2025, within just two months. At the beginning of the year, the Ministry of Finance expected growth of 4.3%, and this was lowered to 3.6% in the previous revision. The latest forecast is for growth of 3.1% this year, and a a sharp recovery in 2026 with growth of 5.1%.

The forecast for 2026 was revised upwards from 4.4% to 5.1%. The Ministry of Finance wrote “According to the latest scenario, 2026 is expected to see a strong economic recovery.” Despite the improved forecast for next year, until the most recent revision two months ago, the Ministry of Finance’s forecast for 2026 was at a higher level – 5.4%.

The new forecast assumes an end to the war and a return to normal growth next year. However, as mentioned, it was prepared before the cabinet approved a major expansion of military activity. With the rapid developments in the region, financial experts are having a tough time trying to calculate coherent forecasts.

Published by Globes, Israel business news – en.globes.co.il – on August 10, 2025.

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