More than a year into the ongoing conflict, Israel’s economy is demonstrating resilience and renewed investor confidence, with recent data highlighting a positive trajectory. Key economic indicators from the past months suggest that Israel is on a path of recovery and growth, despite the challenges it faces.

The Tel Aviv Stock Exchange’s flagship index, the TA-125, has delivered a robust performance, outpacing the S&P 500 in recent months. This surge is particularly noteworthy given the underperformance seen in the previous year due to political instability and the outbreak of war in October 2023. The easing of tensions on the northern front and a decrease in risk premiums have contributed to this rally, marking a turnaround for Israel’s financial markets.

Another indicator of economic recovery is the resurgence in foreign investments. The Central Bureau of Statistics reported that foreign investments in Israel reached $11.5 billion in the third quarter of 2024, the highest quarterly figure since 2021. This influx underscores the sustained attractiveness of Israel’s economy, particularly its high-tech sector, which remains a pivotal driver of growth.

Israel’s current account surplus has also seen a significant rise, with a cumulative surplus of $24.8 billion recorded between late 2023 and the third quarter of 2024. This surplus reflects a strong export performance and supports the appreciation of the shekel, which has strengthened by over 5% against the dollar since the war began. The robust currency helps moderate inflation, providing relief for both businesses and consumers.

In a global ranking by The Economist, Israel secured sixth place among the strongest economies of 2024. Factors contributing to this recognition include impressive stock market returns, low unemployment, and a 6.7% growth rate for the period measured. While global economies like Spain, Greece, and Italy topped the list, Israel’s performance stood out amidst its challenges.

Despite these positive developments, certain vulnerabilities remain. Israel’s annual GDP growth for 2024 is projected to be near zero, with per capita growth expected to decline. Additionally, a rising deficit, anticipated to exceed 7.5% by year-end, and multiple credit rating downgrades highlight underlying economic pressures. International observers have also expressed concerns about the pace of Israel’s post-war recovery.

Nonetheless, Israel’s economic fundamentals remain strong. Private consumption reflects optimism, and the Bank of Israel has proven its ability to stabilize markets, as seen in its intervention in the foreign exchange market at the outset of the war. Looking ahead, a strong shekel and moderating inflation rates provide further reasons for confidence. Economists expect inflation to return to the Bank of Israel’s target range of 1%-3% within the next year.