Israel’s economy experienced a significant setback in the second quarter of 2025, contracting at an annualised rate of 3.5%, according to preliminary estimates from the Central Bureau of Statistics, reports Roya News. This downturn, the most severe since the start of the war on Gaza, is primarily attributed to a two-week nationwide shutdown in June during the war in Iran.
The economic contraction was felt across key sectors:
- Private Consumption: Household spending fell by 4.1%.
- Fixed Asset Investments: Business investment saw a sharp decline of 12.3%.
- Exports: Exports of goods and services, excluding startups and diamonds, decreased by 3.5%.
The Central Bureau of Statistics noted that the data was “significantly affected by the Iran operation,” which caused an immediate halt in economic activity and led to a worker shortage as thousands of reservists were mobilised.
While some sectors reeled, Israel’s globally-oriented high-tech industry demonstrated remarkable resilience. The sector, which accounts for nearly 20% of GDP and 60% of total exports, “continued to thrive” despite the large-scale mobilisation of army reservists.
This resilience is largely due to the fact that most high-tech companies’ revenues are generated from outside Israel, insulating them from domestic volatility.
In stark contrast, the tourism industry was devastated, with tourist arrivals plummeting by 42.4% in June.
In response to the crisis, the Bank of Israel held its key interest rate steady at 4.5% in July, a decision aimed at balancing inflationary risks with the need to support economic activity.
