Business sector indicators for January signal a return to pre-war levels

ISRAEL - In Brief 26 Feb 2025 by Sani Ziv

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The Bank of Israel's Composite State-of-the-Economy Index increased by 0.6% in January, following an upward revision of December's data to 0.9% (compared to the previous estimate of 0.7%) and a revision of November's data to 0.3%. This rise in the index reflects a 0.9% increase in business sector GDP in the fourth quarter of 2024, indicating an ongoing economic recovery. The positive momentum in economic activity can be attributed to the impact of the ceasefire, which has facilitated a rebound in business operations. Additionally, consumer spending patterns suggest that some purchases were brought forward in anticipation of upcoming tax hikes, further supporting economic activity in early 2025. According to the Composite Index, business sector GDP in January was 0.1% higher than in September 2023, the last full month before the outbreak of the war. This suggests that, at least in aggregate terms, business output has returned to pre-war levels. However, sectoral disparities remain, with some industries experiencing stronger recoveries than others. Bank of Israel's economic activity index (2023=100) Source: Bank of IsraelLooking ahead, the continuation of the ceasefire in the north, the return of evacuated residents to their homes, and the reduction in reserve duty mobilization are expected to further support business sector activity. As a result, the first quarter of 2025 is likely to show solid growth compared to the fourth quarter of 2024. We currently estimate that GDP growth in 2025 will exceed 4%, compared to just 1% in 2024.