Economic and Political Overview

flag Israel Israel: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response


Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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 in 2021 (+8.6%) and 2022 (+6.1% - IMF) thanks to buoyant private consumption (around 50% of GDP) and investment, with the resilient high-tech sector attracting venture capital. Moreover, the effects of the Russian aggression on Ukraine had a milder impact on Israel as the country is self-sufficient in natural gas, although the conflict is expected to weaken external demand in the short term. Therefore, the IMF projects growth to moderate to 3% this year and the next, as sustained inflation bites on household spending and higher interest rates drag investment.

In 2022, government fiscal spending was reduced as COVID-related measures were phased out and subsidies in agriculture eased. The strong economic performance led to an increase on the revenue side, contributing to the narrowing of the government budget, estimated at 0.6% of GDP (from 3.6% one year earlier). Nevertheless, measures taken to mitigate the increase in the cost of living will weigh on future budgets, with deficits projected at 0.9% of GDP this year and 1.6% in 2024 (IMF). The public debt-to-GDP ratio resumed a downward path, standing at 61.5% in 2022 (from 68% one year earlier, marking the sharpest decline in 35 years) with projections for a further decrease in 2023 (57.6%) and 2024 (55.7%). Consumer price inflation, at 4.5%, was lower than in most OECD countries, but still above the 1-3% target range set by the Central Bank, which raised the policy rate five times in 2022, from 0.1% to 2.75%. As the global situation normalizes, the IMF sees the inflation rate decelerating over the forecast horizon (at 3.6% this year and 2.5% in 2024), although the robust domestic demand calls for a continuation of the gradual tightening of monetary policy so as not to add to inflationary pressures. International institutions welcomed the country’s ambitious reform programme aimed at boosting infrastructure investment, reforming the vocational system and improving the business environment, as well as the measures taken to reduce tariff and non-tariff import barriers that could have a double positive impact in reducing the cost of living and spurring competition and productivity.

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 52,173 in 2022 by the IMF). However, 25% 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, with a low unemployment rate (3.9% in 2022) and employment above pre-crisis levels, so that the vacancy rate has stabilised at a historically high level towards the end of the year. According to IMF estimates, the unemployment rate will decrease further to 3.8% in 2023 and 3.7% in 2024.

Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 413.27488.53522.53539.22563.27
GDP (Constant Prices, Annual % Change) -
GDP per Capita (USD) 44,85052,15254,71055,53657,064
General Government Balance (in % of GDP) -9.5-3.5-0.7-1.8-1.7
General Government Gross Debt (in % of GDP) 70.768.060.957.655.3
Inflation Rate (%) -
Unemployment Rate (% of the Labour Force)
Current Account (billions USD) 22.5721.0119.0918.8718.68
Current Account (in % of GDP)

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data


Main Sectors of Industry

Israel has a diversified and technologically advanced economy. The agricultural sector employs 1% of the active population, accounting for 1.3% of GDP (World Bank, latest data available). The country has an agricultural land of 638,400 ha (FAO) and its main crops are fruits and vegetables, cereals, wine, and cattle farming. Israel is almost completely dependent on imports to meet its supply of food products: its limited land and water resources preclude agricultural self-sufficiency and affect local production costs and consumer prices; nevertheless, the increasing technological progress and innovation, a high level of investment in R&D, and the potential expansion of water resources are among the primary drivers behind the agricultural sector’s growth. Israel has become a leading agri-tech country, “greening” the desert to grow most of the exported food. In 2021, agricultural exports reached USD 1.1 billion (CBS – latest data available).

Israeli industry excels in the production of chemical products (Israel specialises in generic medicines), plastics and high-tech (aeronautics, electronics, telecommunications, software, biotechnologies, etc.). Industry as a whole comprises 17.2% of GDP and employs 17% of the workforce (World Bank). Numerous companies, particularly those that produce state-of-the-art technology, have benefited from their ability to secure funding from Wall Street and other international financial centres (Israel ranks second, after Canada, in terms of the number of companies registered on American stock markets). Furthermore, many leading international hi-tech companies have established R&D centers in Israel: companies such as Intel, Microsoft, Cisco, IBM and Apple chose Israel as the site for their first development centers outside of the United States. Other important sectors of activity include diamond cutting, textiles and tourism. Overall, the manufacturing sector is estimated to account for 10% of GDP.

The majority of the workforce (82%) is employed in the tertiary sector, which accounts for 72.4% of GDP. Tourism remains significant despite the Israeli-Palestinian conflict: in 2022, 2.675 million tourist entries were recorded (as opposed to only 397,000 in 2021 and 831,000 in 2020, but still 41% below the pre-covid level). Revenue from incoming tourism stands at about ILS 13.5 compared to about ILS 23 billion in 2019. The Israeli economy is also at the forefront of hi-technology services industries. Although highly exposed to the real estate sector, the Israeli banking system is considered stable.

Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 0.9 17.2 81.9
Value Added (in % of GDP) 1.3 17.2 72.4
Value Added (Annual % Change) 6.7 6.0 9.2

Source: World Bank, Latest data available.


Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom


The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

World Rank:
Regional Rank:

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation


Business environment ranking


The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

World Rank:

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024


Country Risk

See the country risk analysis provided by Coface.


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Political Outline

Current Political Leaders
President: Isaac HERZOG (since 7 July 2021)
Prime minister-designate: Benjamin NETANYAHU (since 29 December 2022)
Next Election Dates
Presidential: 2028
Parliament: 2025
Current Political Context
The government led by Naftali Bennett, supported by a coalition that comprised eight parties from different political factions including for the first time the participation of an Arab-Israeli party, suffered several legislative defeats in the Knesset and in June 2022 Bennett passed the baton to Yair Lapid of Yesh Atid who acted as caretaker prime minister until the elections scheduled for 1 November.
The parliamentary election saw the right-wing bloc led by Binyamin Netanyahu, with four parties (Likud, Religious Zionism, Shas, and United Torah Judaism) securing a comfortable 64-seat majority (out of 120 total seats). A couple of days before the end of the year, Netanyahu’s sixth government was sworn in. A change in the government policies will more likely happen on the domestic side rather than on the foreign one, although in light of the good relations between Netanyahu and Russian president Vladimir Putin Israel may take a more neutral stance over the Russia-Ukraine conflict.
Main Political Parties
The Israeli political system is based on proportional representation. No party is in a position to assume power independently, so political groups often co-operate and form coalition governments. The political parties represented in the Parliament are:

- Likud: National Liberal Party, right-wing, nationalist
- Yesh Atid (There is Future): centre, liberal
- Zionist Union: centre-left
- National Unity: a political alliance made up of the Blue and White party and the New Hope party, centrist
- Shas: zionist, populist, conservatism
- United Torah Judaism: right-wing, conservatism, religious
- Yisrael Beiteinu: conservatism, nationalism
- United Arab List (Ra'am): Arab political party, it is the political wing of the Southern Branch of the Islamic movement
Hadash-Ta'al: a joint list of the Ta'al party and Hadash political coalition, left-wing, endorses the two-state solution
- Israeli Labor Party (HaAvoda): left-wing.
Type of State
Israel (official name: State of Israel) is a nation-state based on parliamentary democracy, except in the Palestinian territories.
Executive Power
The President is Head of the State and is elected by the Israeli parliament, the Knesset, for a seven-year term. His/Her role is essentially ceremonial. The President chooses the leader of the party or majority coalition in the Knesset to exercise the functions of the Prime Minister for a four-year term. The Prime Minister is head of the Government and holds the executive power, including the execution of the law and the management of the country's current affairs. The Cabinet is chosen by the Prime Minister before being approved by the Knesset.
Legislative Power
Legislative power is Israel is unicameral. The Knesset (parliament) consists of 120 members, elected by universal suffrage for a four-year term. The Knesset can decide to be dissolved by a simple majority through a vote of no confidence. The Prime Minister cannot dissolve or veto the Knesset. Israeli citizens have significant political rights.

Indicator of Freedom of the Press


The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:

Indicator of Political Freedom


The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Political Freedom:
Civil Liberties:

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House


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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.


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Latest Update: September 2023