Analysis
Israel’s high-tech miracle meets a budget reckoning
Transformational growth since 2000 may be undermined by unsustainable fiscal policy.
The 2025 summary published by the Central Bureau of Statistics (CBS) is particularly striking. It tells the story of Israel’s economy since the beginning of the century, and leaves a large question mark that should concern all of us.
Between 2000 and 2020, Israel experienced what can fairly be described as an economic miracle. From 2020 to 2025, the country endured a quinquennium of historic upheavals: a once-in-a-century global pandemic and the most intense war since the state’s founding. The overarching question now is simple: what comes next?
1. A Quarter Century of Transformation
Between 2000 and 2025, Israel’s economy not only grew - it fundamentally transformed. GDP more than doubled, rising by 2.33 times. Real GDP per capita increased by nearly 50% over 25 years, placing Israel among the top performers in the OECD.
This metric is particularly significant given Israel’s high natural population growth rate of about 2% annually, one of the highest in the developed world. Sustained per capita growth under such demographic pressure is no small achievement.
The improvement in living standards is evident in private consumption data. Over the past quarter century, spending on semi-durable goods, clothing, footwear, home textiles, small household appliances, tools, entertainment and leisure products, rose by 150%, even as the population grew by just 57%. In other words, economic growth translated into tangible improvements in daily life.
Equally important is the qualitative transformation of the economy. According to CBS data, technology and knowledge-intensive service industries have become Israel’s primary growth engine. Added value in the information and communications sector, the category that most closely reflects high-tech, surged by more than 400%. Professional and technological services expanded by roughly 180%, while agriculture and traditional manufacturing declined in relative importance.
Israel became not only a high-tech nation but a service-export powerhouse. Exports of services (excluding tourism and startup exits) increased sixfold, a 500% rise, underscoring the country’s integration into the global economy.
Taken together, these figures describe a historic economic leap.
2. 2025: A Turbulent Year With a Partial Recovery
The second part of the CBS review focuses on 2025, a turbulent year marked by geopolitical uncertainty, repeated revisions to growth forecasts, and ultimately a relatively stable outcome.
Growth reached approximately 3%, in line with expectations, with recovery across key demand components, particularly investment and exports.
2025 was also the year in which the war with Hamas formally ended and the confrontation with Iran moved into a lower-intensity phase. While neither conflict was decisively resolved, both shifted into less acute stages, fueling hopes for economic recovery.
That full recovery did not materialize in 2025. However, forecasts for 2026 project growth of more than 5%, reflecting expectations of improved stability.
The broader takeaway: the Israeli economy has demonstrated resilience, even amid extraordinary turbulence.
3. The Crack in the Story: Fiscal Policy
The third part of the story is less celebratory.
According to the CBS, Israel’s government deficit stands at 5.2% of GDP, above the 4.7% reported by the Accountant General. The gap amounts to roughly 11 billion shekels. The CBS calculates the deficit according to international standards and provides the data used by global institutions and credit rating agencies.
This marks the third consecutive year in which the deficit has exceeded 5% of GDP, according to CBS methodology, a level widely considered unsustainable over time.
If the first part of the story is a miracle, the third is a warning.
A government that fails to correct its fiscal trajectory and implement structural reforms risks undermining the very conditions that enabled the economic transformation of the past 25 years.
The CBS concludes its annual summary with deficit data, not coincidentally. This follows recent warnings from Israel’s chief economist and the International Monetary Fund (IMF) regarding fiscal sustainability and policy discipline.
Demographic trends compound the challenge. Israel’s aging population is expanding, increasing demand for healthcare and long-term care services. At the same time, the share of populations with low labor force participation is growing.
If ultra-Orthodox men do not integrate into military service or the labor market; if the education system fails to provide a broad core curriculum; if crime continues to constrain the economic potential of Arab society, future growth will erode.
Without deep structural reforms, meaningful investment in scientific and technological education for the entire population, and policies that prioritize productivity over sectoral budget allocations, Israel cannot sustain the growth trajectory of the past quarter century.
The danger is not sudden collapse, but gradual erosion.
The CBS summary is therefore not merely a collection of statistics. It is a reminder of what Israel has achieved, and a question about whether it can preserve those achievements.
