Israel economy powered to 12.4% gain in Q3 after end of Iran conflict

[JERUSALEM] Israel’s economy rebounded sharply in the third quarter, putting in a stronger-than-expected performance after a weak Q2 that was hit by the conflict with Iran on top of the Gaza war.

Gross domestic product grew an annualised 12.4 per cent in the July-to-September period from the prior three months, the Central Bureau of Statistics said on Sunday (Nov 16).

“This reflects a rapid recovery following the war with Iran,” said Leader Capital Markets chief economist Jonathan Katz, referring to a 12-day war between Israel and Iran in June that shut down Israel’s economy due to heavy incoming missile fire.

The Q3 GDP gain topped a Reuters consensus of an 8 per cent expansion and was fuelled by broad-based gains led by consumer spending (+23.0 per cent), exports (+23.3 per cent) and investment (+36.9 per cent). Government spending grew 4.4 per cent.

The Gaza war was triggered by a raid on Israel by Palestinian militant group Hamas on Oct 7, 2023. Since then, the economy has been restrained due to as many as 300,000 civilians called into military reserve duty and forgoing their jobs for long stretches of the conflict.

Economic growth was 1 per cent in 2023 and is projected to grow 2.5 per cent in 2024, according to the Bank of Israel, whose estimate is slightly weaker than 2.8 per cent from the Finance Ministry. But growth, held back somewhat during the two-year Gaza war, is forecast to expand around 5 per cent in 2026.

Israel’s economic resilience has helped lead to all-time highs in Tel Aviv share indices, while the shekel has gained some 11 per cent versus the dollar this year to a 3½ year peak.

GDP in Q2 was revised to a 4.3 per cent contraction from a prior 3.9 per cent.

Last month, the US brokered a ceasefire between Israel and Hamas that is still largely holding.

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The GDP data come after the bureau on Friday said the annual inflation rate held steady at 2.5 per cent in October, a level some believe could prompt the Bank of Israel to lower short-term interest rates, possibly as soon as next week.

“The rapid growth in the third quarter supports a cautious monetary approach by the Bank of Israel,” said Katz, who expects a rate cut “every second decision starting from 24 November” to reach 3.75 per cent from a current 4.5 per cent. REUTERS