OECD projects Israeli economy to rebound after Gaza ceasefire

The Organisation for Economic Co-operation and Development (OECD) predicts that the Israeli economy will recover significantly following the American-brokered Gaza ceasefire in October. The OECD’s current forecast is that Israel’s economy will grow by 3.3 percent in 2025 and potentially up to 4.9 percent in 2026. By comparison, the organization predicts that the average growth rate among the member states will be 3.2 percent in 2025 and 2.9 percent in 2026. 

“The private sector will lead the economic expansion as military expenditure contracts,” the OECD assessed in its report. “Investment will be strong given the backlog accumulated during the war [and] improved household confidence amid more peaceful conditions will support private consumption."

Based in Paris, OECD is the organization for the world’s most developed economies. Israel formally became a member in 2010, and its economy has in the past two decades generally grown at a faster rate than the average among the member states. 

Despite its general optimism concerning the Israeli economy, the OECD nevertheless warned of risks of less disciplined fiscal and tax policy as means to cover the dramatic increase in defense and civilian needs following two years of war. The organization therefore assessed that the Israeli economy remains vulnerable to potential renewed fighting in the Middle East. 

“On the downside, returning warfare would widen the budget deficit and hurt private demand,” the OECD warned.

“On the upside, completing the peace agreement beyond the ceasefire could strongly boost growth, particularly in 2027, especially if new trade agreements were signed with large Middle Eastern countries,” it continued, likely referring to the expansion of the Abraham Accords between Israel and the wider Sunni Arab world. 

The organization nevertheless stressed the importance of the Gaza ceasefire. 

“The ceasefire has important economic ramifications, including a lower risk premium,” it assessed. “International trade will gain from better geopolitical conditions and Israel’s industrial specialization."

“The ceasefire should remove a source of reluctance to doing business with Israel,” the OECD added.

While generally optimistic, the Bank of Israel presented a more conservative growth outlook for the Israeli economy, forecasting 2.5 percent growth in 2025 and 4.7 percent in 2026. The Israeli Finance Ministry predicts a 2.8 percent growth rate in 2025. 

Bank of Israel Governor Amir Yaron predicted in June 2024 that the Gaza war would cost the Israeli economy $67 billion in military and civilian expenses for the years 2023–2025. His estimate preceded Israel’s additional, financially heavy military operations against the Islamic Republic of Iran in June 2025 and against its main terrorist proxy, Hezbollah in Lebanon, in late 2024.

In August 2024, senior Israeli economists including the former Israel Central Bank chief Karnit Flug warned that the Gaza war threatened Israel’s economic stability. 

“The economy right now is under huge uncertainty, and it’s related to the security situation – how long the war will go on, what the intensity will be and the question of whether there will be further escalation,” Flug assessed at the time. It would take over a year before U.S. President Donald Trump brokered a fragile ceasefire between Hamas and Israel in October 2025. 

Israel’s military spending grew substantially in the past two years as a result of the intense multi-front war with the Iranian regime and its terrorist proxies Hamas, Hezbollah and the Houthis in Yemen. The war also had a negative impact on the Israeli export industry, which remains a critical growth engine. In 2022 following the end of the pandemic, Israel’s economy grew by 6.3%. The growth rate fell to 1.8% in 2023 and to 1% in 2024. 

Despite the unpredictable situation in the combustible Middle East, Israel’s economy appears to be recovering after the country fought its longest and most expensive war in its modern history since 1948.