by Shimon Sherman
“There are about 300,000 people who are actually responsible for keeping Israel in the developed world in terms of all the more advanced sectors of the economy,” Dan Ben-David noted.
Since the outbreak of war on Oct. 7, 2023, the Israeli economy has continued to demonstrate remarkable resilience.
While many developed economies have struggled with slowing growth and volatile markets, Israel’s key financial indicators have shown consistent strength, suggesting that the underlying economy remains sound despite the ongoing security challenges.
The most visible marker of this strength has been the performance of the Tel Aviv Stock Exchange (TASE). The benchmark TA-125 index rose by roughly 81% between October 2023 and October 2025, outpacing major international indices such as the S&P 500 and Nasdaq Composite, which gained around 56% and 71% , respectively, during the same period.
Between 2023 and 2025, the total market capitalization of companies listed on the TASE expanded from roughly 1 trillion shekels to about 1.4 trillion shekels (approximately $430 billion), underscoring remarkable investor resilience and equity-market growth amid wartime conditions.
The shekel has also appreciated significantly against global currencies. According to the Bank of Israel, the currency strengthened by 9.3% against the U.S. dollar and by 6% in nominal effective terms during the second quarter of 2025.
Benjamin Bental, Economics Policy Program chair at the Jerusalem-based Taub Center for Social Policy Studies, explained that when evaluating the shekel’s recent growth, one must factor in the massive shekel devaluation in recent years.
“The shekel was severely devalued due to the conflict surrounding judicial reform and then devalued even more due to the start of the war, so the growth that we’re seeing right now needs to be measured against that original starting point,” Bental told JNS.
Beyond the capital markets, other macroeconomic indicators reinforce the picture of stability. The Bank of Israel reported that gross domestic product grew by 3.7% (annualized) in the first quarter of 2025, a pace close to the country’s long-term average. At the same time, the return on Israel’s foreign-exchange reserves reached 6.7% in 2024, one of the highest levels in the past decade.
Meanwhile, general government debt rose to around 69% of GDP in 2024, up from 61% the previous year, reflecting the surge in wartime spending. Even so, this remains well below the Organization for Economic Co-operation and Development (OECD) average of about 110%, and only about one-fourth of Israel’s public debt is owed to foreign creditors, meaning most government borrowing is denominated in shekels and financed domestically.
Foreign investment
Foreign investment continues to play a decisive role in Israel’s economic strength, particularly through the high-technology sector. In the first half of 2025, Israeli startups raised approximately $9.3 billion across 365 funding rounds, an increase of 54% compared with the second half of 2024. International investors contributed nearly 70% of these rounds, underlining sustained global interest despite the ongoing security situation.
The volume of merger and acquisition (M&A) activity has been even more striking. By October 2025, Israeli technology companies recorded roughly $71 billion in completed M&A transactions, led by cybersecurity, artificial intelligence and enterprise software firms. The largest of these was Alphabet’s acquisition of Israeli cloud security firm Wiz for about $32 billion, one of the biggest deals ever concluded in the global tech industry and a benchmark for Israel’s position in cybersecurity innovation.
Beyond acquisitions, multinational corporations are also expanding their long-term presence in Israel. Nvidia has announced plans for a multi-billion-dollar research and data-center campus in northern Israel, described by officials as large enough to employ thousands and designed to serve as a regional hub for advanced computing. The project represents one of the largest single physical investments in Israel’s technology infrastructure.
Public confidence and resilience
The strong performance of Israel’s markets and macroeconomic indicators has been mirrored by public confidence from the government and financial authorities. Senior officials and international institutions have repeatedly framed Israel’s economic resilience as a product of strong fundamentals rather than short-term momentum.
At a press conference on Sept. 16, 2025, Prime Minister Benjamin Netanyahu declared that “the Israeli economy is very strong,” describing it as “innovative” and resilient. He said it had “weathered two economic crises—the COVID crisis and the two-year war, where we have an enormous amount of investments.” Netanyahu pointed to foreign investment as evidence of recovery.
International institutions have repeatedly affirmed Israel’s economic prospects. The OECD’s 2025 Economic Survey states that “the Israeli economy has been remarkably resilient to the shock of the 7 October terror attacks and subsequent war,” attributing this strength to its pre-war fiscal position, capable monetary management, and robust tech sector. S&P Global Ratings reaffirmed Israel’s “A/A-1” sovereign rating in May 2025, citing its “wealthy and diversified economy, its sizable net external asset position, and the benefits that accrue from flexible monetary settings and a relatively deep pool of domestic savings.”
Israel’s current economic stability continues a pattern established during earlier global crises. “Israel’s economy is one of the most resilient in the entire developed world,” Dan Ben-David, president of the Shoresh Institution for Socioeconomic Research at Tel Aviv University, told JNS. “Israel was definitely an outlier in terms of its capacity to bounce back from these types of disturbances in the national economy,” he added.
Bental explained that “Israel’s small, innovative economy has a lot of flexibility and makes it good at maneuvering itself and adapting itself to new economic realities.”
During the 2008–09 global financial crisis, the Bank of Israel and the International Monetary Fund both noted that Israel’s financial system “proved comparatively resilient” owing to conservative banking regulation and low exposure to mortgage-backed securities.
A similar pattern was observed after the COVID pandemic. According to the OECD Economic Survey of Israel 2023, GDP expanded by 8.6% in 2021 and 6.4% in 2022, among the fastest recoveries in the OECD.
The organization attributed this rebound to Israel’s rapid vaccination campaign and a high-tech-driven economy supported by strong policy frameworks. The Bank of Israel Annual Report 2022 likewise concluded that the country’s “fiscal position allowed for a rapid recovery.”
Threats to the economy
While Israel’s recent economic performance underscores strong fundamentals, several external factors could weigh on future stability. Credit rating agencies and policy institutions have cautioned that prolonged security tensions and global volatility may test the limits of Israel’s resilience.
While the S&P Global Ratings affirmed Israel’s A/A-1 rating, it retained a negative outlook, noting that “we could lower our ratings on Israel in the next 24 months if the military conflicts hamper the country’s economic growth, public finances, and balance-of-payments position.”
The OECD’s 2025 Economic Survey of Israel likewise warned that persistent geopolitical risk “could amplify downside pressures on Israel’s fiscal positions,” particularly if global growth slows. The geopolitical constraints have already taken a significant toll on Israel’s tourism market.
“Tourism has not recovered yet due to the constraints of the war. This sector of the economy is very sensitive to political threats and is less resilient than other sectors of the Israeli economy,” Bental noted.
Furthermore, Israel’s economy remains highly exposed to external markets. Over 60% of its exports go to the U.S. and Europe, making it vulnerable to trade slowdowns, tariffs or shifts in investor sentiment. This dependence also carries geopolitical risks: Extended regional conflict or diplomatic friction could trigger regulatory pressure, targeted export restrictions or even limited sanctions.
Israel’s business climate also continues to face headwinds from heavy regulation and an elevated tax burden. The OECD’s 2025 Economic Survey described Israel as suffering from stringent regulation in terms of product-market rules, licensing and bureaucratic procedures. The report urged the government to “reduce administrative complexity and streamline permitting frameworks” to improve productivity and competitiveness.
The business sector has echoed these concerns, with industry groups, such as the Manufacturers Association of Israel, warning that complex regulation and high compliance costs are eroding competitiveness and discouraging domestic investment.
The dual nature of Israel’s economy presents an even greater internal challenge. The Israel Innovation Authority reports that the high-tech sector employs 11% of the workforce, yet generates about 53% of national exports and 20% of GDP. The remainder of the labor market is characterized by low productivity and high poverty rates.
According to the OECD 2024 Social Indicators Report, roughly 21% of Israelis live below the poverty line, among the highest rates in the OECD. “What that means is out of a country of 10 million, there are about 300,000 that are actually responsible for keeping Israel in the developed world in terms of innovation, in terms of health care, in terms of all the more advanced sectors of the economy,” Ben-David said.
He further observed that this imbalance in productivity has led to a massive inequality in tax burden, with around 93% of income tax being paid by 20% of the population, and almost half the population earning wages below the minimum tax bracket.
Ben-David said that Israel is risking putting all its eggs in one basket due to the hyper-dependency of the national economy based on this one sector. “Israel has an overdependency on high-tech. This is the foundation upon which this economy is built, and if high-tech encounters a problem, then the island’s economic foundation will collapse,” Ben-David said.
Bental added that to perceive the high-tech sector as “a monolith” would be a mistake and that while possible, the “composition of the high-tech sector, with the traditional emphasis on cyber, needs to be reevaluated.”
He criticized “Israel’s dual economy,” saying that while there is a hyper-productive high-tech industry, “the rest of the economy is doing much, much worse.”
Bental added that the challenge is to “make the rest of the economy catch up and to take on some of the culture and the practices of the high-tech sector that have made it so successful.”
Education further complicates this picture. In the OECD’s 2022 Program for International Student Assessment (PISA), Israeli students scored 458 points in mathematics, below the OECD average of 472, and performed modestly lower in science while remaining close to average in reading.
“The Israeli education system is leaving too many people behind. They’re finding themselves in a situation where they don’t have the tools to participate in a modern, developing economy,” Ben-David said. Overall, Israel ranked in the middle of participating economies but showed one of the largest achievement gaps in the developed world.
The OECD warned that such deep educational disparities limit social mobility and threaten Israel’s long-term productivity, as large segments of students fail to reach the skill levels required in an advanced, innovation-based economy.
“The education system and the economy are deeply linked,” Ben-David explained. “In another 25 years, this will lead us to a place where our workforce is not capable of sustaining a first-world economy. That means we won’t have first-world healthcare, we won’t have first-world innovation, and most importantly, we won’t be able to sustain our first-world army and defense system.”
Shimon Sherman is a columnist covering global security, Middle Eastern affairs, and
geopolitical developments. His reporting provides in-depth analysis on
topics such as the resurgence of ISIS, Iran’s nuclear ambitions,
judicial reforms in Israel, and the evolving landscape of militant
groups in Syria and Iraq. With a focus on investigative journalism and
expert interviews, his work offers critical insights into the most
pressing issues shaping international relations and security.
Source: https://www.jns.org/israeli-economy-proves-resilient-despite-wartime-pressure/
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