Israel’s Economy Rebounded Strongly Ahead of Gaza Ceasefire

(Bloomberg) — Israel’s economy significantly accelerated in the third quarter, recovering from a plunge triggered by the 12-day war with Iran in June and ahead of the ceasefire in Gaza reached in mid-October.

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Gross domestic product rose 12.4% in annualized, seasonally adjusted terms, Israel’s Central Bureau for Statistics reported on Sunday, well above the median estimate of 7.3% in a Bloomberg survey of eight economists.  

Leading the rebound was gross fixed capital formation, which rose 36.9%. Exports grew by 23.3% and private consumption accelerated by 23%. Government consumption expanded by 4.4% — the most since the beginning of the year.

Israel’s central bank and finance ministry recently lowered their annual growth projections for 2025 to 2.5% and 2.8%, respectively, mainly due to the economic impacts of the large-scale military operation to take over Gaza City which Israel launched in September, and the call-up of tens of thousands of reserve soldiers. The process of the reservists’ gradual demobilization started only in the past few weeks.

“Israel’s economy is expected to grow sharply in the third quarter supported by the acceleration in private consumption,” Modi Shafrir, chief strategist/financial markets at Bank Hapoalim BM, said before the report was released. “Initial data, however, currently indicates a relative stagnation in private consumption in the fourth quarter according to currently available credit-card-purchases data.”

At the same time, Shafrir noted a sharp increase in October’s consumer confidence index with optimism apparent on both household conditions and Israel’s national economic standing over the coming year.

Israel agreed to a ceasefire with Hamas in October, ending a two-year war in Gaza triggered by the militant group’s deadly attacks on Israel. Almost all Israeli hostages have been released in exchange for Palestinian prisoners, and Israel redeployed its troops behind a so-called yellow line which still keeps about half the Palestinian territory under its control.

The next steps in US President Donald Trump’s 20-point peace plan – which the US is looking to validate through a UN Security Council resolution – include the disarmament of Hamas and establishment of an International Stability Force to oversee the process.

The ceasefire seems solid for now, with 200 US soldiers keeping watch from a newly formed command center in Israel’s south, yet the practicalities of the future mechanisms have yet to be completed.

Israeli Defense Minister Israel Katz said on Sunday that Gaza will be demilitarized “down to its last tunnel” and Hamas will be disarmed whether “by an international force or by Israel,” signaling that the ceasefire could still face challenges.

Israeli markets have rallied on the assumption that imminent security threats have been alleviated, and that there are prospects for positive geopolitical developments like the expansion of the Abraham Accords.

The Tel Aviv 35 benchmark index is up 51.5% year on year, and the shekel has appreciated by 16% over the past two years, making it the best performing currency for this time period in a basket of expanded majors tracked by Bloomberg.  

CDS costs — used by some traders to hedge against a default in sovereign debt payments – are down to about 70 points, 50% lower than their levels during Israel’s brief war with Iran, yet still higher than their pre-war levels.

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