Israel moved up three spots and has been the third-best performing economy in 2025 out of a list of 36 countries, according to an annual ranking compiled by The Economist.
The British magazine cited the outperformance of Israel’s stock market and a strong recovery of the economy following the two-year Israel-Hamas war in Gaza, which was halted in October with a ceasefire. Israel’s economy trailed only those of Portugal, which scored the top spot, and Ireland, which came in second place.
“Israel has continued its strong recovery from the chaos of 2023,” The Economist said, adding that Israel has been among the best performers when it comes to its local stock market.
“In the past year, the share price of the country’s most valuable listed company, Bank Leumi, has risen by around 70%,” The Economist added.
The Economist’s ranking for the “economy of the year” is based on an overall score evaluating five economic and financial performance indicators in a given year – core inflation, inflation breadth, Gross Domestic Product (GDP), employment and stock market performance.
Israel is also one of the best-performing equity markets in local currency terms in the 2025 ranking after Slovenia, the Czech Republic and South Korea.
Illustrative: People shopping at the Azrieli mall in Tel Aviv, during the Municipal Elections, February 27, 2024. (Flash90)
According to a recent forecast by the Organisation for Economic Co-operation and Development (OECD), a group of countries with developed economies, Israel’s economy is expected to rebound this year, and grow at a rate of 3.3 percent. Global GDP, by comparison, is expected to grow by around 3% this year, The Economist projected in the annual ranking.
Israel’s economy expanded at a slower pace of 1% in 2024 as the wars with terror groups Hamas in Gaza, and Hezbollah in Lebanon, ballooned government spending on military and civilian needs, taking a toll on the country’s exports and investments.
Meanwhile, Israel’s annual inflation rate in recent months moved within the government’s target range of 1% to 3%, and slowed to 2.4% in November.
Israel’s economic resilience has helped lead Tel Aviv share indices to record highs this year amid the raging multifront wars, outperforming the world’s major stock indexes. Similarly, the shekel has strengthened against both the dollar and the euro despite an economy strained by ballooning war costs and a growing debt burden.
In 2024, the Tel Aviv Stock Exchange (TASE) was already the world’s fastest-rising stock market — after taking a big plunge at the outbreak of war with the Hamas-led attack on October 7, 2023.
Israel’s main stock indexes continued to climb this year, with the benchmark TA-125 index gaining 49% and the TA-35 index of blue-chip companies soaring more than 50%.
The performance of Israel’s main share indices, a barometer for a country’s economic performance, also served as a magnet for attracting foreign investment inflows back to the local stock market, according to a TASE report published on Monday.
Foreign investors flocked to Israeli markets to buy shares starting in mid-2024 after a sell-off at the outbreak of the war in 2023 and as fighting intensified in the first six months of the following year, said Yuval Tsuk, an economist at TASE’s research unit.
Illustrative: Skyscrapers in Tel Aviv. March 2023. (Anna Arinshtein via iStock by Getty Images)
As of September 2025, the value of holdings by foreign financial institutions in Tel Aviv stocks, excluding dual-listed stocks, reached a historic record of $19.2 billion, more than double the figure before the outbreak of war, according to TASE data. In the first nine months of the year, overseas investors poured $2.4 billion into the local capital market. The lion’s share, or 80% was from North American investors, and the remainder was from Europe.
In the TASE report, Tsuk said positive security developments for Israel led to the steady influx of billions of shekels by foreign investors over the past year into investment vehicles that track local main stock indexes.
Investor optimism that was stirred by the targeted strikes last year that eliminated most of the Hezbollah leadership, including its leader Hassan Nasrallah, and reasserted Israel’s military primacy, got another boost following Israel’s campaign against Iran in June.
Israel’s military achievements against Iran’s nuclear program — alongside the already weakened Iranian proxies in Lebanon, Syria and Gaza — reduced the market perception of risks to Israel’s security and economy, the report said.
In addition, the resilience of the local economy alongside strong business results by Israeli retail companies and banks also made investment in the local capital market more attractive, Tsuk said.
Overall, foreign institutional investors account for about 10% of the value of public holdings in stocks listed on the TA-125 stock index and about 11% of the value of public holdings in the TA-35 index.
Financial sector stocks, including the country’s five largest banks and insurance companies, attracted most of the foreign investor interest, accounting for about 70% of their total holdings as of the end of September. Stocks of local real estate companies, including Azrieli and Melisron, accounted for about 12% of foreign investor holdings.
