Economic Rebound Stretches
The economic pace gained a tremendous boost in the first quarter of 2025 as official statistics recorded a 3.4% growth annualized. This is a sharp contrast from the 1.9% growth posted in the last quarter of 2024. Having dipped in performance, this shift is an indicator of new life in economic action and movement.
Consumer Expenditure and Investments Drive the Economy
Leading this increase was quick capital expenditure, a strong rise in services exports, and strong household consumption. The combination of these three provided a good base for economic momentum, underpinning rising domestic confidence and greater financial strength.
Inflation Still Above Target
While the GDP figures are positive, inflation remains a significant concern. April 2025 annual inflation edged up to 3.6%, keeping it beyond the Bank of Israel’s target range of 1–3%. It was brought on mostly by the price of air transport, electricity, and water, which affected consumer buying power and household expenditures.
Interest Rates Remain at 4.5%
Reiterating to persistent inflation, the Bank of Israel decided to maintain its benchmark interest rate unchanged at 4.5%. This is a signal of a policy stance that’s valuing stability over pre-emptive loosening. Officials said they would need consistent evidence of declining inflation before reconsidering a shift in monetary policy. This is comparable to responses in larger economies like America.
Looking Ahead: Lower Growth, Lower Inflation on the Horizon?
While guarded, sentiment in the financial markets is optimistic. Most analysts anticipate the inflation to moderate to about 1.8% within the year, which could allow interest rates to be lowered. However, there is acknowledgment that economic growth may need to slow in the short term to balance demand and supply.
Signs of Strength, But Risks Remain
The first-quarter numbers bring a welcome revelation of Israel’s economic resilience. There are still dangers of inflationary pressures, high lending, and regional unrest. Aside from these hurdles, robust performance in top sectors and gradual recovery can sustain hopes for more stable growth in the remainder of 2025.
