EconIsrael Vol. 117

Dear Readers,

In the third week of Operation “Roaring Lion” / "Epic Fury" Israel’s economy continues to demonstrate stability in the face of the wartime challenge.

Alongside positive data for February, pointing to strengthening financial stability and a 3% gain in israel's TA-125 stock index, this week also saw the release of initial indicators relating to the wartime period.

February inflation data remained encouraging. Inflation over the past 12 months stood at 2%, exactly at the midpoint of the Bank of Israel’s target range. Inflation expectations for one year ahead also remained low, ranging from 1.5% in the capital market to 2.2% in the forecasts of financial institutions.

The current account surplus rose sharply in the final quarter of 2025, and the Bank of Israel reported a 15.5% increase in the public’s financial assets, reaching approximately NIS 7.2 trillion.

Turning to wartime-related data, in an effort to maintain a lower deficit in light of the high costs of the fighting, the Ministry of Finance and The Association of Banks in Israel reached an agreement on a one-time transfer of NIS 3.25 billion from the banks to the state, as an alternative to the tax changes discussed over the past year. This step is expected to bring the deficit back to the original 2026 budget target of 4.9% of GDP, as set before the start of the operation.

A survey conducted by the Central Bureau of Statistics shows that, as in previous war situations, the biggest constraint on business activity is the closure of schools due to the indiscriminate missile attacks on Israel. According to the survey, 42% of businesses reported that school closures are adversely affecting their operations. The survey also indicates that the high-tech sector continues to demonstrate resilience and leadership. Since the start of Operation Roaring Lion, only 6% of businesses in high-tech and finance have reduced employment due to the security situation, while 71% of these businesses continue to operate as usual. Around one-third of high-tech and finance companies expect no negative impact, and possibly even an increase in revenues, in March. Across all sectors, only 4% of large businesses reported that the war had affected business activity or led to workforce reductions during the operation.

This week also marked meaningful progress in a strategic step to strengthen Israel’s high-tech sector. The Knesset Finance Committee approved the new R&D Law for second and third readings representing a significant shift in the incentive structure for innovation. The law is designed to align the Israeli economy with the new global tax rules under OECD Pillar 2, while preserving substantial tax incentives under the global minimum tax regime. If finally approved, the law will apply retroactively from the beginning of 2026 and will include enhanced benefits for companies that invest and establish activity in Israel’s national priority areas.

Stay informed and stand with Israel,

Noach Hacker