Sharp Contraction in the Israeli Economy Due to War with Iran

SadaNews - The Israeli economy experienced a sharp decline of 3.5% in gross domestic product during the second quarter of 2025 due to a significant drop in consumption and a decline in investments. Consequently, many economists expect the Bank of Israel to cut interest rates next September.

The bulk of the slowdown has been attributed to the impact of the 12-day war with Iran, which disrupted economic activity.

The Israeli Central Bureau of Statistics reported the following statistics during the specified period:

The commercial sector took a significant hit, contracting by 6.2%.

Private consumption decreased by 4.1%.

Public spending declined by 1%.

Investment in fixed assets plummeted by 12.3%, indicating weak business confidence.

Exports of goods and services, excluding startups and diamonds, fell by 3.5%.

Imports, excluding defense-related purchases, rose by 3.1%.

Economists say the disappointing data reflects the war's impact on consumer and commercial activity.

One analyst pointed out that "these figures highlight a significant contraction, especially in the private sector and investments, which could weigh on recovery prospects."

The figures are not expected to affect the Bank of Israel's interest rate decision next Wednesday, but they may influence the central bank's upcoming meeting on September 29.

Many economists believe that the weak outlook increases the likelihood that policymakers will make the first interest rate cut of this year in an effort to stimulate growth.