‘Israel's’ economy experienced a significant setback in the second quarter of 2025, contracting at an annualized rate of 3.5%, according to preliminary estimates from the Central Bureau of Statistics.

 

This downturn, the most severe since the start of the war on Gaza, is primarily attributed to a two-week nationwide shutdown in June during the war in Iran.

 

The economic contraction was felt across key sectors:

Private Consumption: Household spending fell by 4.1%.

Fixed Asset Investments: Business investment saw a sharp decline of 12.3%.

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

The Central Bureau of Statistics noted that the data was "significantly affected by the Iran operation," which caused an immediate halt in economic activity and led to a worker shortage as thousands of reservists were mobilized.

 

While some sectors reeled, ‘Israel's’ globally-oriented high-tech industry demonstrated remarkable resilience.

 

The sector, which accounts for nearly 20% of GDP and 60% of total exports, "continued to thrive" despite the large-scale mobilization of army reservists.

 

This resilience is largely due to the fact that most high-tech companies' revenues are generated from outside ‘Israel’, insulating them from domestic volatility.

 

In stark contrast, the tourism industry was devastated, with tourist arrivals plummeting by 42.4% in June.

 

In response to the crisis, the Bank of ‘Israel’ held its key interest rate steady at 4.5% in July, a decision aimed at balancing inflationary risks with the need to support economic activity.