Macroeconomic and geopolitical developments – Weekly report, September 15, 2025
The focal point last week was Israel’s unprecedented strike in Doha against the Hamas leadership. From Israel’s perspective, the operation fell short of its objective, as senior Hamas figures were apparently not present in the targeted building. The move drew criticism abroad, including from Washington, and highlighted Israel’s difficulty in converting military action into political outcomes. In Gaza, the IDF is preparing for intensified operations aimed at taking control of Gaza City. The ongoing fighting is weighing on the fiscal accounts and economic growth, particularly through the extended mobilization of reservists.
On the economic front, August fiscal data came in stronger than expected, with the deficit narrowing to 4.7% of GDP, driven by a sharp, although likely temporary, rise in tax collections. War-related spending, however, is expected to push the deficit higher from Q4 onward. Looking ahead, markets are focused on August CPI, due Sept. 15 (today), with expectations of a 0.6% monthly rise, which would bring annual inflation down to 2.8%. The outcome will be a key factor in shaping the Bank of Israel’s September 29 rate decision. Meanwhile, balance of payments figures released today showed the current account surplus shrinking sharply to just $0.6bn—its lowest in more than a decade—reflecting weaker exports and rising Israeli investments abroad, partly offset by resilient foreign direct investment.
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