OECD expects Israeli economy to rebound in 2025, urges structural reforms

By Sharon Wrobel

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2 April 2025, 1:25 pm

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Sharon Wrobel is a tech reporter for The Times of Israel

The Organisation for Economic Co-operation and Development (OECD) expects Israel’s economy to rebound this year but is more pessimistic about the pace of growth than local projections, citing the risk of war-related spending continuing to take a toll on the country’s finances.

In the Economic Survey report for 2025, the OECD urges Israel to focus on closing socioeconomic gaps by removing subsidies to yeshiva students, cutting bureaucratic red tape, and boosting competitiveness and productivity in its economy beyond its vibrant tech sector, to help bring down the high cost of living.

The OECD says Israel’s high cost of living continues to reduce welfare and spur social tensions. Israel is ranked fourth in the list of developed countries with the highest cost of living. The organization cites geographical factors, trade barriers, and stringent product market regulation as reasons that continue to contribute to the high prices of essential goods and services.

“The economy remains heavily influenced by the conflicts, which hit investment and exports while war-related expenditure soared,” the OECD says in the report. “Growth is set to pick up when the economic environment becomes closer to normal.”

On the assumption that Israel’s fighting in Gaza and Lebanon will ease, the OECD forecasts that the country’s economy will grow at a rate of 3.4% in 2025 and 5.5% in 2026, which is faster than the organization’s growth forecast for the global economy of 3.1% in 2025 and 3% in 2026. However, the OECD’s 2025 growth forecast is lower than the 4% projection by the Bank of Israel and the Finance Ministry’s 4.4%.

“Policies need to keep the economy steady, and securing solid growth requires curbing inflation and containing fiscal deficits while funding future spending needs,” the OECD says. “Economic performance would strongly benefit from reforms that address infrastructure gaps and improve educational outcomes and labor‑market participation among ultra‑Orthodox and Arab Israelis.”