The Dive

The Economy of Israel - Industry & Market Trends in 2023

Last Updated: May 2, 2023


What is The Overall Outlook in Israel?

Israel is a small, open economy heavily reliant on global demand for high-tech products and services. Its main disadvantage is high levels of regional political and security risk. Despite this, Israel has developed resilience to political uncertainty and security concerns and has successfully forged markets beyond the region. Israel historically lacked formal relations with most of the other regional states, but in 2020 the Abraham Accords led to the normalization of ties with several Arab states and a significant potential increase in economic ties. Israel’s high spending on military research has had positive knock-on effects for the civilian technology sector.

Israel has invested heavily in education and spends a higher proportion of its GDP on civilian research and development than any other country. The local workforce is highly educated, with more than 50% of the population enrolling in tertiary education. Nonetheless, concerns have risen about the quality of the education system and the integration of segments of the population into that system, heightened by the coronavirus pandemic’s unequal effects on society. Tackling these deficiencies will play a central role in policymakers’ attempts to address the problem of low productivity growth in the Israeli economy.

In contrast with many developed economies, Israel’s labor force will continue to grow over the long term. The government is seeking to encourage greater labor force participation among previously marginalized groups. Population growth will be faster than in most high-income countries, but will slow as birth rates decline slightly; net immigration, although staying high, will slow over the long run according to UN projection. The average retirement age will rise, especially as pension payments are likely to be squeezed further. Public pension funds are permitted to reduce payments if they face an actuarial deficit. In 2003, the official retirement age was raised from 65 to 67 for men and to 62 for women. Further increase to 67 for women will also be gradually introduced over the coming decade.

Although the working-age population will continue to expand, the share of the population over 65 will rise as life expectancy edges up. Total public and private spending on healthcare is likely to rise as healthcare is prioritized in the wake of the pandemic, despite the efficiency of the healthcare system. Alongside demographic trends in the Arab and ultra-Orthodox populations, this will support a further increase in labor force participation, as will government policies such as tax credits for working families and increases in the minimum wage. Women already make up more than 45% of the workforce, limiting scope for a marked increase in women’s labor participation outside specific communities such as the Arab population.

Over the coming decade, there are several key factors that will be the most influential to the growth of Israel. Despite having a favorable demographic profile, and play an important role in the tech sector across the world of which boosts the country’s resilience, Israel does have many political instability issues and security risks among its neighbor countries. If it is able to maintain such balance, it is expected the country will grow in parallel or even faster than the world AVG at 3-3.3% over the long run, according to IMF estimates.

Table of Contents
Real GDP Growth(%)|Data After 2023 is forecasted by IMF
GDP Per Capita (Current $)|Data After 2023 is forecasted by IMF

Economic Structure

Israel - Economic Structure & Forecast

GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.

Private Consumption
Government Expenditure
Capital Formation
Net Export

Economy Outlook

Economic Snapshot of Israel

In 2023, Israel’s external and domestic demand growth is likely to decrease due to various factors such as higher living costs, rising interest rates, and recessions in export markets, although high-tech service exports will be less impacted. While rising inflation will reduce consumer demand, a surge in immigration and ongoing employment growth will maintain positive private consumption growth. The gas sector is expected to benefit from high global energy prices and European efforts to diversify energy sources away from Russia, despite the weak global economy.

Business investment growth will remain positive but low due to higher interest rates and a global downturn in technology markets. Export performance will be affected by the fall in global demand and the appreciation of the shekel. High-tech manufacturing and technology business services will continue to grow slowly, while gas export volumes are expected to increase strongly. Import growth will ease due to muted consumer demand growth, but the import of capital goods for infrastructure and energy sector development will continue. Real GDP growth is predicted to slow sharply in 2023, to 3%, but will average 3.3% a year in the coming decade with global and local demand recovery.

Unemployment Rate(%)|Forecasted data for after 2023
Inflation Rate(%)|Forecasted data for after 2023

Industry Structure

Israel - Industry Breakdown & Forecast

GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.

Explore Development in Other Economies

Demographic Outlook

Demographic Outlook in Israel

Racial Profile

Jewish 74.1% (of which Israel-born 78.1%, Europe/America/Oceania-born 15.2%, Africa-born 4.3%, Asia-born 2.4%), Arab 21%, other 4.9% (2019 est. by CIA)

Languages Used

Hebrew (official), Arabic (special status under Israeli law), English (most commonly used foreign language)

Religions Practiced

Jewish 74%, Muslim 18%, Christian 1.9%, Druze 1.6%, other 4.5% (2020 est. by CIA)

Population Structure

Israel - Population Pyramid

Political Outlook

Political Outlook & Policy Trends in Israel

Israel is a parliamentary democracy that was established in 1948 and has successfully industrialized over the years. The country experienced a hyper-inflationary crisis in the mid-1980s, which led to the adoption of a market-driven economy. Since the 1990s, the technology sector has grown rapidly, and Israel has absorbed multiple waves of mass immigration up until the late 1990s. The peace process between Israel and Palestine has been stagnant for years, with Israel occupying territories claimed by Palestine. Shared concerns about Iran and economic opportunities allowed Israel to normalize ties with several Arab states in 2020, which was historical and critical for the stability in the region.

Israel’s political structure is based on a parliamentary system of representative government, with a 120-seat unicameral parliament called the Knesset. The president is the formal head of state, but his powers are mostly ceremonial. The Knesset is elected at least once every four years under a system of proportional representation, and the leader of the party most likely to assemble a majority in the Knesset is called upon by the president to form a government. Governments have always ruled in coalition and rarely complete their terms.

Security issues, primarily Iran’s ambitions, remain a priority for Israel. The unresolved Israeli-Palestinian conflict is also a significant concern. Although the government has made progress in liberalizing the economy, economic inequalities and the high cost of living remain a source of popular concern. To address these disparities, the government plans to implement market liberalization and provide targeted support to some communities. Religious-secular issues are likely to remain a divisive topic, with reforms expected to stall.

The immediate priority for the new government of Israel will be to obtain legislative approval for the 2023 budget, which will require significant adjustments to accommodate changes in the economic cycle and politically motivated tax and spending changes. However, there are some areas of consensus with previous governments in terms of maintaining fiscal spending at manageable levels. In the short term, the high cost of living will be the top policy issue due to global inflationary pressures, with measures such as market liberalization, reduced import tariffs, tax credits, and social support for targeted groups being key to government efforts. In the longer term, infrastructure, renewable energy, and transport will be policy priorities, with labor market reform being a significant long-term goal, but with only partial success expected in the medium term. Despite some pushback from elements of the new government, pro-business policies, including monetary policy independence, free trade, and open capital markets, will be broadly maintained under successive governments, but social welfare considerations will gain slightly more prominence, potentially limiting tax cuts and exemptions in some sectors.

Israel 2022 Knesset (Legislative) Election
Note: No Left–Right Categorization
Current Account Balance (% of GDP)|Forecasted data for after 2023
Government Debt (% of GDP)|Forecasted data for after 2023

Foreign Policy

Trade & Foreign Investment In Israel

Export (Million Dollars | Nominal)
Export - Percentage of World (‱)
Foreign Direct Investment (Million Dollars | Nominal)
FDI - Percentage of World (‱)

Consumer Outlook

Israel - Consumer & Market Outlook

We work with 3rd party data offices and our experts network to deliver the most comprehensive retail & consumer behavior landscape there is.

E-Commerce Development, Penetration, Trends & Outlook in Israel

Social Media Development, User Demographics, Platforms, and Trends in Israel

  • Economic Data:OECD, World Bank, IMF、Government Statistics Bureau
  • Currency Exchange:Based on IMF data in 2023/1
  • GDP Growth Projection:OECD、IMF, OECD, EIU、Government Bureau
  • Demographics:UN Population Database
  • Race, Culture, and Languages:CIA Factbook
  • Unemployment Rate Projection:ILO, UNECE
  • Trade:UN Comtrade, UNCTD
  • ICT Infrastructure:ITU
  • Data Calculation &
  • Analysis:OOSGA Analytics
Author: Economic Team, FR Team

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