Economic Overview

The Israeli economy has recorded one of the best performances of the OECD countries in recent years, mainly due to an increase in the working-age population and the participation rate. After an abrupt halt due to the COVID-19 pandemic, the Israeli economy resumed its growth path (+6.5% in 2022). The country was performing well in the first part of 2023, with GDP growing around 3% in the first three quarters; however, the evolving conflict following Hamas’ terrorist attacks on Israel on 7 October had a strong economic impact. Therefore, the estimated growth was reduced to around 2% of GDP in 2023 (CBS). In 2024, the outcome hinges on the war's duration and whether the conflict remains confined to Gaza or extends to other areas, such as potential involvement with Hezbollah in southern Lebanon. The security situation and a notable decrease in the civilian labour force, coupled with a decline in economic sentiment, are primarily impacting private consumption and investment due to disruptions in the supply side. Additionally, export growth is expected to be hindered by a decline in tourism.

In 2023, Israel recorded a budget deficit of 4.2% of its gross domestic product, a significant shift from the 0.6% surplus seen in 2022. This change was attributed to heightened state spending, particularly to fund the war against the Palestinian Islamist group Hamas in Gaza (data by the finance ministry). Lawmakers approved a war budget of approximately ILS 30 billion for 2023 and cabinet ministers are deliberating a revised 2024 budget, involving additional funds in the tens of billions of shekels, which is anticipated to raise the budget deficit to around 6% in 2024. In early November, parliament approved a NIS 15 billion (0.8% of GDP) business support package which included grants for businesses near Gaza and Lebanon borders and others based on revenue losses. Support measures extend to evacuated households, simplified access to unemployment benefits, and business liquidity measures like VAT payment postponement and loan guarantees. Israel's public debt-to-GDP ratio amounted to 62.1% in 2023, compared to 60.5% one year earlier. In 2023, Israel successfully raised approximately USD 42.3 billion, highlighting its capacity to secure substantial funds even amid wartime conditions and reflecting a high level of investor confidence in the country (data by the finance ministry). Consumer price inflation, at 3.7% in October, remained above the Central Bank’s 1-3% target range, and inflation developments will depend on the interplay of supply and demand disruptions.

Israel has one of the highest living standards in the region, with salaries in line with the European average (the GDP per capita PPP was estimated at USD 54,771 in 2023 by the IMF). However, around 21% of Israelis live in poverty and inequality is relatively high. Furthermore, households suffer from high real estate prices and costs of living. The Israeli labour market is tight: in the first part of 2023, the labour market was close to full employment (the unemployment rate stood at 3.4% in September). Nevertheless, the outbreak of war with Palestinian Hamas militants led to tens of thousands of displaced citizens, thus the rate spiked to 9.6% in October, as 428,400 people were jobless versus 163,600 in September.

Foreign Trade

Israeli foreign trade represents 61% of the country's GDP (World Bank, latest data available). The main goods imported by Israel include machine and electronics manufacturing (15%), machinery and equipment (8.5%), chemical products (6.9%), and furniture and electrical equipment (5.3%). In 2022, manufacturing, mining and quarrying exports (excluding diamonds) constituted 91% of all exported goods, exports of diamonds represented 8% and the remaining 1% were agriculture, forestry and fishing exports (data CBS). A breakdown by economic activity points to a 91% increase in the exports of pharmaceutical products, with electronic components and boards rising by 31.7% compared with 2021.

In terms of geographic origin, imports came chiefly from China (13.3%), the U.S. (9%), Germany (6.6%), Switzerland (5.7%) and Turkey (5.3%); whereas exports were directed mainly towards the U.S. (by far the largest partner, accounting for 27.7% of total exports), China (6.8%), India (5.7%), the UK (4.6%), and Ireland (3.8% - data CBS 2022). The EU as a whole accounted for 27% of total exports and 32% of imports. Israel has a liberal import policy: in addition to the Free Trade Agreement (FTA) with the United States, Israel has FTAs with Canada, Turkey, the EU and EFTA. Furthermore, in 2022 it signed an FTA with the United Arab Emirates.

Israel’s balance of trade for goods is structurally negative, but the one of services is positive thanks to strong exports of high-tech services, such as computer consulting services, computer services and software. According to WTO’s latest data, in 2022 merchandise exports reached USD 73.5 billion (+22.3% y-o-y), while imports amounted to around USD 107.2 billion (+16.4%). In the same year, exports of services reached USD 90.8 billion, with imports standing at USD 43.2 billion (+26.3% and +36.2%, respectively). Thanks to the contribution of services, the World Bank estimated the country’s trade balance to be positive by 3% of GDP in 2022. According to the Israeli Statistics Office (CBS), in 2023 the trade deficit (goods only) decreased by 12.8% year-on-year, as exports of goods declined by 3.7% and imports by 6.6% (to ILS 234.8 and 337.7 billion, respectively).

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the government of Israel, please consult the country's dedicated section in the IMF’s Policy Tracker platform.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.