Israel's Gross Domestic Product (GDP) rose at an annual rate of 3.7% in the first quarter of 2025, according to the Central Bureau of Statistics (CBS). This marks a modest acceleration from the 2.0% growth in Q4 2024. Every quarter, GDP increased by 0.9%, while GDP per capita rose by 2.4% annually.
The uptick in economic activity was primarily fueled by business sector output, which grew by 4.5%, up from 2.4% in the previous quarter. Exports (excluding diamonds and startups) surged by 9.8%, and imports (excluding defense, ships, aircraft, and diamonds) rose by 3.6%.
Consumption Falls Sharply Despite Overall Growth
While headline growth figures suggest recovery, the private consumption sector painted a bleaker picture. Private consumption expenditure fell by 4.7%, with per capita consumption plunging by 5.8%. The decline was largely driven by a dramatic 67.1% drop in spending on durable goods, such as vehicles and household appliances — a reversal after consumers rushed purchases ahead of tax hikes introduced in early 2025. Purchases of electrical goods alone dropped 35.2%.
In contrast, current private consumption per capita, which includes essential expenses like food, housing, and services, rose by 4.1%, suggesting that households are prioritizing necessities over discretionary spending.
Public Spending Stabilizes
After a sharp spike in Q4 2024, public spending plateaued, increasing by just 0.1%. Civilian consumption fell by 12.5%, driven by a 35.8% reduction in government purchases. Defense spending also contracted by 15.6%, following an almost 50% surge in the previous quarter, possibly linked to emergency military expenditures during the Iron Sword War.
Investment Market Shows Mixed Signals
Investment activity revealed sharp contrasts. Investment in fixed assets increased by 6.1%, led by a 42.7% surge in construction. However, CBS noted that construction investment remains at a historically low level, comparable to Q4 2021.
Meanwhile, investment in land transport vehicles collapsed by 98.2%, almost halting entirely after a prior spike. Investment in machinery and equipment grew by 38.2%, but investment in high-tech industries (ICT) dropped 75%, and intellectual property investment declined by 8.9%. These figures reflect a cautious stance from businesses, potentially due to security concerns and tightening financial conditions.
Export and Import Trends Reflect Structural Shifts
Israel’s exports of goods rose by 10.3%, but service exports dropped 0.5%. Notably, "other" service exports — excluding tourism and startups — climbed by 10.5%, suggesting ongoing strength in professional and financial services. However, startup-related exports declined, contributing to a modest overall export growth of 1.5%.
On the import side, civilian goods imports fell by 16.8%, while services imports jumped 31.5%. A key driver was the 103.6% increase in tourism-related imports, although levels remain 8.3% below pre-war figures from before the third quarter of 2023.
Moderate Growth Amid Post-Crisis Recovery
Compared to the same quarter last year, GDP grew by 2.8%, private consumption rose by 5.8%, and investment in fixed assets expanded by 10.7%. Imports and exports were up 9.2% and 4.5%, respectively.
Overall, the economy appears to be moving forward cautiously, navigating the aftermath of security tensions and economic disruptions. While GDP and exports are showing resilience, the significant contractions in private consumption and investment in key sectors highlight ongoing uncertainty. Structural strengths remain evident, but vulnerabilities in domestic demand and business confidence could shape the trajectory ahead.
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