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

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.

Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 525.00509.48530.66569.51594.69
GDP (Constant Prices, Annual % Change)
GDP per Capita (USD) 54,96752,21953,37256,20557,590
General Government Balance (in % of GDP) -0.2-5.3-7.7-5.7-4.4
General Government Gross Debt (in % of GDP) 60.561.967.367.367.8
Inflation Rate (%)
Unemployment Rate (% of the Labour Force)
Current Account (billions USD) 20.3623.9629.6724.1321.89
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.

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 centres in Israel: companies such as Intel, Microsoft, Cisco, IBM and Apple chose Israel as the site for their first development centres outside of the United States. Other important sectors of activity include textiles and diamond cutting. 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), while revenue from incoming tourism stood at about ILS 13.5 billion 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 17.0 82.1
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: Benjamin NETANYAHU (since 29 December 2022)
Next Election Dates
Presidential: June 2028
Parliament: November 2026
Current Political Context
The latest parliamentary election saw the right-wing bloc led by Binyamin Netanyahu, with four parties (Likud, Religious Zionism, Shas, and United Torah Judaism) securing a 64-seat majority (out of 120 total seats). A month after it was sworn in, Netanyahu’s sixth government proposed a set of five changes to the judicial system and the balance of powers aiming to curtail the role of Israel's Supreme Court and shift its authority to the Knesset (Parliament). This move ignited widespread protests across the country, drawing criticism from legal experts, opposition parties, and civil society organizations. The protests continued for several months, reflecting deep public concerns about the erosion of judicial independence and the potential for political interference in the justice system. On March 27, 2023, in response to public protests and general strikes, Netanyahu declared a halt to the reform process to facilitate discussions with opposition parties. Subsequently, on July 24, 2023, the Knesset approved a bill limiting the Supreme Court's authority to deem government decisions unreasonable. However, on January 1, 2024, the Supreme Court invalidated the bill.
On October 7, Palestinian militants, led by Hamas, initiated a large-scale attack and sustained rocket fire from the Gaza Strip into southern Israel. In response, Israel undertook a substantial military reaction, mobilizing a significant number of reservists. On the evening of October 27, 2023, Israel initiated a large-scale invasion of the Gaza Strip aimed at dismantling Hamas and overthrowing the organization's governance of the Gaza Strip. Tensions in the region remain heightened, particularly with Syria, Lebanon, and Iran.
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.
Executive Power
The President is the 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 the 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: July 2024