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For 2025, the OECD outlook is also more positive than Israel’s own estimates, putting next year’s GDP increase at 3.3%, compared with 2.5% forecast by the central bank and 2.8% predicted by the ministry.
By Shula Rosen
Israel’s medium-term economic outlook received a boost on Wednesday with the release of a new OECD forecast projecting two consecutive years of strong growth after the Gaza ceasefire. The organization anticipates a 4.9% expansion in 2026, followed by 4.6% in 2027, signaling that the rebound is expected to carry forward rather than taper after a single recovery year.
The new figures place the OECD between the Bank of Israel and Finance Ministry projections for 2026, but the continuation of high growth into 2027 is viewed as the clearest sign of optimism.
For 2025, the OECD outlook is also more positive than Israel’s own estimates, putting next year’s GDP increase at 3.3%, compared with 2.5% forecast by the central bank and 2.8% predicted by the ministry.
In its broader review of Israel’s economy, the OECD wrote, “The private sector will lead economic expansion as military spending contracts.” Inflation is projected to moderate steadily, with the analysis stating, “With supply constraints easing, inflation is expected to decline from 3.1% in 2025 to 2.4% in 2026 and 2% in 2027.”
The organization’s delegation met with Finance Minister Bezalel Smotrich and other officials earlier this month. The review says conditions are developing for further interest-rate reductions in the coming year. After two years of monetary tightening, core inflation has cooled and the shekel has appreciated 5.5%. The OECD noted that these trends “pave the way for the Bank of Israel to continue lowering its interest rate from 4.25% in November 2025 to 3.75% during 2026.”
Exports are also showing momentum. Goods shipments from Israel climbed 5.8% in the August–October period compared with the previous three months, while services exports rose 8% in the first eight months of 2025 versus the same period the year before. According to the report, “The ceasefire should remove a source of hesitation in doing business with Israel,” and the expanding global defense and cybersecurity markets are expected to lift demand for Israeli products.
The review links the improving environment to a sharp drop in Israel’s risk premium. Government CDS prices fell 30 basis points after the June operation in Iran. It added, “After the 12-day war brought economic activity to a complete standstill with GDP contracting by 1.1% in the second quarter, activity recovered strongly with growth of 3% in the third quarter.”
Beyond its macroeconomic projections, the OECD urges Israel to shift its fiscal strategy. It recommends narrowing budget reductions to areas it views as hindering workforce participation, citing transfers to yeshiva students in particular, while protecting investment in infrastructure and education. On revenue, it supports “Raising carbon tax rates, removing VAT exemptions, implementing a mileage tax, and taxing unused land, sugary drinks, and disposable plastic items.”
The Finance Ministry has already proposed a 1.5% levy on vacant land for the 2026 budget, though reinstating taxes on drinks and disposable goods—removed by Minister Smotrich when he entered office—is not currently planned.
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