An economist is someone who states the obvious in words that are incomprehensible.
I am an economist who, for many years, spoke and wrote incomprehensible, mathematical babble.
Lately, I have tried my best to reform. Keenly aware of the gobbledygook I and my fellow economists favor, I now try hard not to confuse readers with jargon.
Let me state a non-obvious, somewhat ignored fact. Israel’s economy has proven to be remarkably resilient. This, despite more than 16 months of a costly seven-front war, which at one point saw nearly 10 percent of the labor force called up for IDF reserve duty. Many reservists still do long stretches of active service; the newly appointed Chief of Staff Eyal Zamir quickly asserted that 2025 will be a year of combat, too.
Much credit for the economy’s resilience is due to the career professionals at the Bank of Israel and the Finance Ministry, who guide the economy with skill and wisdom. Give no credit to the bloated 32-minister Netanyahu government, whose pointless ministries waste billions of shekels, and with massive budgets earmarked for the ultra-Orthodox, who continue to evade IDF service and demand to anchor this injustice in law.
Arrange all the economists in the world in a straight line, and they still won’t reach a conclusion.
So, here is at least one clear economic conclusion. In 2024, a full year of war, Israel’s economy barely grew. But according to the Bank of Israel economists, employing a state-of-the-art macroeconomic model called MOISE, in 2025 Israel’s gross domestic product (GDP) will grow by 4%, and by 4.5% in 2026. The forecast for US GDP growth for 2025 is only 1.5% to 2.7%.
This is remarkable, given Israel’s stumbling government, high defense spending, and global hostility to Israel led by China, Turkey, Russia, Spain, South Africa, and Ireland. It is a tribute to the resilience of rank-and-file Israelis, tested historically by lesser wars and good at implementing Winston Churchill’s wartime maxim, “Keep calm and carry on.”
For an economist, the real world is a special case.
Prof. Amir Yaron, governor of the Bank of Israel, was appointed on October 9, 2018, replacing Karnit Flug. He found himself managing Israel’s currency, money supply and financial markets, and advising the government during the COVID pandemic, political turmoil during the judicial coup, and the Gaza war.
Yaron’s hand on the financial tiller has been quiet, firm, and steady. Kudos to him and to all the bank’s professionals. They do live in the real world, which has been exceptionally chaotic for at least the past six years. Israel’s real world is an especially difficult, tumultuous special case.
Growth forecasts defy expectations
In 2024, inflation – the rate of increase in the consumer price index – was 3.4%, remarkably low for a war economy. The forecast for 2025 is 2.6%, and for 2026, it is 2.3%. This, despite the government’s large budget deficit in 2024 of 7% of GDP, which the Bank of Israel predicts will fall to 4.7% in 2025, and only 3.2% in 2026.
The smaller deficit is largely due not to the government’s fiscal responsibility but to the resilient economy, generating strong tax revenue.
Israel’s predicted budget deficit for 2025 is notably smaller than that of the US, currently over 6%, according to the US Congressional Budget Office.
Israel’s exports expectedly took a hit in 2024, falling by 5%, but it will grow by 4.5% in 2025 and by 5.5% in 2026. The Bank of Israel predicts that an even stronger recovery will occur in fixed investment (capital spending on infrastructure), which plummeted by 7.5% in wartime 2024 but will grow by 8% in 2025 and by 15% in 2026.
Governments of countries at war are generally forced to borrow large amounts to fund deficits. The US, not at war, has a growing public debt of 125% of GDP, reflecting persistent large budget deficits driven by unfunded tax cuts. Israel’s public debt in 2024 was about half that, 67% of GDP, and that ratio will remain almost constant in 2025 and 2026.
Finally, the rate of unemployment for those aged 25 to 64 was 3.5% in 2024. It will fall slightly to 3.1% in 2025 and 2026. The US unemployment rate in December was higher, 4.1%.
In Voltaire’s play Candide, Dr. Pangloss satirizes Leibnitz’s philosophy that all is for the best in this the best of all possible worlds. Pangloss tells desperate survivors of a Lisbon earthquake that…it’s all for the best.
The Bank of Israel’s economic forecast does sound too good to be true. A lot of things could derail it. Here are several causes for concern, including warning signals provided by the Bank of Israel itself.
Trumponomics: Cultivate chaos and spread it widely.
Trumponomics is the economic theory that drives President Donald Trump’s economic policies. It features tax cuts for the rich; low interest rates; high tariffs on countries that sell more to the US than it buys (nearly everyone); expelling immigrant workers; and removing renewable energy subsidies.
The Bank of Israel notes that “the policy steps announced by the new US administration may hurt world trade, and raise the level of world prices, hence raising the level of uncertainty regarding our forecast.” Israel’s open economy catches cold when the world sneezes.
Global chaos is bad for Israel, whose hi-tech industry is driven by exports. The key thing to watch is the US Central Bank, known as the Federal Reserve, or Fed for short.
The US Fed may have to put its finger in the leaky inflation dike caused by Trumponomics – more or less as Israel’s Bank of Israel has sought to do. Will Trump bring the Fed to heel, as he has done with the FBI, Justice Department, and federal agencies? Stay tuned. The answer is crucial, not only for the US but for Israel and the world as well.
Will the last Israeli leaving the country please turn out the lights
Israel’s Central Bureau of Statistics (CBS) reports that in 2024, some 82,700 Israelis left the country, while only 23,800 returned. The result was that population growth, a high 1.6% in previous years, was only 1.1% in 2024. Many of those who left Israel were highly skilled hi-tech workers.
This is especially worrisome because Israel’s growth engine is driven by a thin red line of innovative hi-tech engineers and scientists. An economist is someone who knows the price of everything – and the value of nothing.
There are brilliant, expert economists in the Finance Ministry and the Bank of Israel, servants of the country, who bring integrity and values to their work every day, despite low pay and tempting private-sector offers. They work in the face of scorn and harassment by some of their ministers, working long hours to build constructive government budgets and manage the economy, resisting massive political influence to spend, spend, spend.
At times, it becomes too much to bear. On December 25, Finance Ministry director general Shlomi Heisler told Finance Minister Bezalel Smotrich that he was quitting. While Heisler’s reasons for resigning were reportedly related to his health and personal life, he and Smotrich are known to have clashed, over legislation that would lock into law haredi draft exemptions, and over Smotrich’s degrading humiliation of professionals within the ministry.
Smotrich is a lawyer. He has no qualifications whatsoever to lead and manage the massive 2025 government budget with NIS 607 billion ($170.5 billion) of total spending, let alone a corner store. Like most of his fellow cabinet ministers, he seems focused on advancing the narrow sectoral interests of his base – the settlers – and is indifferent to the values and aspirations of the people in general.
Perhaps, in the rear of the wheezing ministerial government truck whose wheels always seem about to come off, it is not the professional economists who are capable of unlimited destruction.■
The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion. He blogs at www.timnovate.wordpress.com.