OECD sees sustained post-war growth in Israel

The OECD has published its latest economic forecast for Israel, in which it sees strong growth of 4.9% in 2026 and only a slightly lower rate of 4.6% in 2027, following the ceasefire in Gaza.

The OECD’s forecast for 2026 is in the middle of the range between the Bank of Israel’s (4.7%) and the Ministry of Finance’s (5.2%) forecasts. However, the optimism in the forecast is expressed precisely in the assessment that 2026 will not be a one-off rebound year, as the Ministry of Finance warns, but that the strong growth rate will continue in 2027.

As for 2025, the OECD also sees Israel’s GDP growth as higher than Israeli predictions. The OECD expects a 3.3% increase in Israeli GDP this year, significantly higher than the 2.5% forecast by the Bank of Israel and 2.8% by the Ministry of Finance.

The OECD review on Israel, part of its global outlook, says in 2026 “The private sector will lead economic expansion as military spending contracts.”

On inflation, it comments, “With supply constraints easing, inflation is expected to decline from 3.1% in 2025 to 2.4% in 2026 and 2% in 2027.”

The OECD expects the conditions to be ripe for further interest rate cuts by the Bank of Israel in the coming year. The review notes that after two years of tightening policy, core inflation has cooled and the shekel has strengthened 5.5%. These developments “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.”

In the area of international trade, the OECD expects a significant recovery. Exports of goods from Israel rose 5.8% in August-October 2025 compared with the previous three months, and exports of services in January-August 2025 were 8% higher than a year earlier. The review notes, “The ceasefire should remove a source of hesitation in doing business with Israel,” adding that the global boom in defense and cybersecurity will benefit Israeli exports.

Recommendation: Cut yeshiva budgets

The OECD cites the decline in Israel’s risk premium due to the ceasefire. The review says CDS rates on government bonds – a kind of insurance contract against the possibility that a debt issuer will default on obligations – fell by 30 basis points after the operation in Iran in June. “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,” it said.

Along with fiscal convergence, the OECD recommends Israel adopt structural reforms, some of which concern explosive domestic Israeli issues. For example, a recommendation to “move from general restraint to more targeted cuts, such as transfers to yeshiva students that prevent their participation in the job market,” while prioritizing infrastructure and education.

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On the revenue side, the OECD supports, “Raising carbon tax rates, removing VAT exemptions, implementing a mileage tax, and taxing unused land, sugary drinks, and disposable plastic items.”

In the 2026 budget, the Ministry of Finance is trying to impose a 1.5% property tax on vacant land, but the reimposition of taxes on sugary drinks and disposable items is not on the agenda. The first action Minister of Finance Bezalel Smotrich took when he took office as Finance Minister was to abolish these very taxes, which were imposed by his predecessor Avigdor Liberman and which angered the haredi parties at the time.

Published by Globes, Israel business news – en.globes.co.il – on December 2, 2025.

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