Israeli Economy Thrives Despite War, Outperforming Global Markets

Finance Minister Bezalel Smotrich's early-term assertion of faith in a divinely aided economy, initially met with derision from the left, appears to be validated by a series of positive economic indicators over the past four years. Smotrich had stated his belief in "the economy of 'If you will listen' and 'If you will walk in My statutes,'" suggesting that alongside practical efforts, divine assistance is crucial for economic prosperity. Critics on the left, however, frequently invoked his words during negative economic events, such as when Moody's downgraded Israel's credit rating in February 2024.

Contrary to expectations of economic downturn, Israel's economy has shown remarkable resilience, particularly during the ongoing conflict. The Tel Aviv Stock Exchange's TA-125 index has surged 124% since the current government's inception in late December 2022, significantly outperforming the S&P 500's 88% rise and Europe's STOXX 600's 40% gain during the same period. When accounting for the Israeli Shekel's appreciation of over 11% against the dollar and 7% against the Euro, foreign investors have seen even greater returns.

Inflation in Israel stands at a low 1.6%, less than half that of the US (3.7%) and the Eurozone (3.8%). This is reflected in interest rates, with Israel's rate at 3.25% after three consecutive cuts, while the US rate is 4% and European rates have been increasing. Foreign direct investment in Israel reached a record high of over $26 billion in 2025, a 14% increase from the previous high in 2021 and a 78% jump from 2024, which saw a wartime dip. The first quarter of 2026 marked the strongest ever for foreign investment.

The International Monetary Fund (IMF) has raised its growth forecast for Israel to 4.5% for the current year, the highest among OECD countries. Domestic forecasts from the Bank of Israel are even more optimistic, projecting 5.6% growth this year and 7.5% next year. Real estate prices have also stabilized, with a cumulative increase of only about 3% since early 2023 and a 1.8% decrease in the past year, representing a real-term price drop after accounting for inflation. Credit rating agencies S&P and Moody's have revised their outlook for Israel from negative to stable, indicating a return of market confidence, though the ratings themselves have not yet fully recovered to pre-war levels.