Israeli Economy Shrinks 3.5% in Q2 Amid Conflict with Iran

2025-08-17 22:34 By Chusnul Chotimah 1 min. read

Israel’s economy contracted by 3.5% on an annualized basis in the second quarter of 2025, reversing from a downwardly revised 3.4% growth in the previous quarter, according to preliminary estimates.

This marked the first economic contraction since Q4 2023, largely driven by a 12-day war between Israel and Iran in mid-June, which significantly disrupted economic activity.

All major components of GDP declined: private consumption fell by 4.1%, government spending by 1%, and fixed capital formation by 12.3%.

On the external front, exports and imports dropped by 12% and 3.5%, respectively.

On a quarterly basis, the Israeli economy shrank 0.9% in Q2 2025.

In July, the Bank of Israel revised its 2025 GDP growth forecast downward to 3.3%, from 3.5% in its April projection.



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