J.P. Morgan: Israeli Economy Set for Double-Digit Rebound — Growth May Reach 11% in Q3 of 2025

Global banking powerhouse J.P. Morgan published two optimistic reports on Friday — one on Israel’s inflation outlook and another on its macroeconomic recovery — forecasting that Israel’s real GDP growth could reach as high as 11% in the third quarter of 2025, marking one of the strongest rebounds in recent years. While the bank’s official forecast predicts growth at a more conservative 7.5%, analysts note that “a positive surprise is likely,” as the economy rebounds rapidly from the disruptions earlier in the year.

“Our models indicate a sharp acceleration in activity driven by private consumption, household income, and employment,” the report stated. “If there is a surprise — it will be upward.”

Private Consumption Surges After Ceasefire

J.P. Morgan attributes the strong third-quarter performance to a sharp recovery in domestic demand following the Gaza ceasefire and the return of market stability.

The bank’s “nowcasting” model, which tracks 20 high-frequency economic indicators, estimates that private consumption jumped 16% in Q3, after a 4.8% contraction in Q2 amid the Iran operation.

The consumer confidence index rose by 10 points in October, reflecting renewed optimism among households. However, the bank cautions that the rebound is not uniform across sectors: investment and exports remain sluggish, and the recovery is “not yet broad-based.”

Outlook: Slower but Stable Growth Ahead

Looking forward, J.P. Morgan expects the economy to cool modestly to 3.5% growth in Q4, bringing full-year 2025 GDP growth to about 2.5% — broadly aligned with the forecasts of the Bank of Israel (2.8%) and the Finance Ministry (2.5%).

The report underscores that while consumption is currently the main growth driver, its momentum is likely to taper off toward the end of the year.

“After a summer surge, household spending will likely normalize,” the bank noted, adding that the next phase of growth will depend on “reviving investment and export channels.”

Inflation and Monetary Policy

The bank welcomed today’s Central Bureau of Statistics report showing annual inflation steady at 2.5%, with housing costs acting as a key brake on price increases.

While food, energy, and durable goods prices rose slightly more than expected, J.P. Morgan expects headline inflation to reach 2.7% by December 2025 and to fall to around 2% by early 2026 — the midpoint of the government’s target range (1–3%).

The bank emphasized that inflation has clearly moderated in recent months, creating room for the Bank of Israel to begin cutting interest rates, which have stood at 4.5% since January.

“With declining price pressures, lower inflation expectations, and a stronger shekel, the conditions are in place for the Bank of Israel to start its monetary calibration process,” J.P. Morgan wrote.

Market Context

The anticipated rate cut would mark the first since mid-2023 and could help ease mortgage costs, revive business credit, and stimulate investment. However, J.P. Morgan warned that policymakers will likely move gradually, balancing the need for growth with global economic uncertainty.

The bank’s overall message was clear: Israel’s economy is rebounding faster than expected, led by consumers and supported by easing inflation — though the recovery’s durability will depend on renewed confidence in exports and investment.