Israel’s Q1 GDP shows moderate rebound, but recovery remains uneven

ISRAEL - In Brief 19 May 2025 by Sani Ziv

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Israel’s GDP grew at an annualized rate of 3.4% in the first quarter of 2025, up from 1.9% in Q4 2024, according to preliminary estimates released yesterday by the Central Bureau of Statistics. When adjusted for the drop in import taxes on vehicle purchases—technically included in GDP—the underlying growth rate reaches 5.4%, indicating a clearer acceleration in real activity. Despite the rebound, real GDP remains only 0.6% above pre-war levels, and 1.9% below its potential path, underscoring the lingering impact of the war on economic capacity. Net trade weighed heavily on GDP in the first quarter, as imports surged by 5.0% while exports declined by 1.8%. In addition, private consumption fell by 5%, driven largely by a steep drop in purchases of vehicles, furniture, and household appliances, following an increase in Q4 2024 as consumers front-loaded purchases ahead of new tax hikes. In contrast, spending on non-durable goods and services rose by 2.0% (annualized). Notably, service consumption jumped by 13%, supported by the temporary ceasefire agreement with Hezbollah, which eased security concerns and revitalized activity in northern Israel.  At the same time, spending on semi-durable goods—such as clothing, footwear, and similar items—declined, possibly reflecting the impact of higher VAT rates and reduced disposable income. Gross domestic product, quarterlyIn billions of NIS, constant 2020 prices The chart presents Israel’s real GDP from 2019 through Q1 2025. The dashed line reflects the potential output path assuming 3.4% annual growth.  Although GDP has rebounded, it remains only slightly above pre-war levels and well below its potential trajectory. Source: Centra...