Macroeconomic and geopolitical developments – Weekly report, October 6, 2025
This week, Israel returned from an extended Yom Kippur weekend to a single trading day (Sunday) before entering another holiday break for Sukkot. During the intermediate days of the holiday (Chol HaMoed, Wednesday, Thursday, and Sunday), business and financial activity will take place on a limited scale. Markets will then close again for the final days of Sukkot (Monday-Tuesday), and the economy is expected to fully resume operations on October 17.
On the geopolitical front, the coming week will be focused entirely on negotiations over the first phase of President Trump’s Middle East plan, which includes the release of hostages, the release of Palestinian prisoners, and a phased Israeli withdrawal. Unlike in previous rounds, the initiative is now being coordinated with key Arab states—Saudi Arabia, Qatar, Egypt, and Turkey—increasing the likelihood of tangible progress after two years of devastating war.
In this report, we outline two geopolitical scenarios for Israel’s economic outlook under Trump’s plan, depending on the extent of its implementation. The scenarios differ in the degree of implementation of the plan, which determines Israel’s growth trajectory, fiscal deficit, and debt-to-GDP ratio. Each scenario also carries distinct monetary implications, which we discuss in detail in this report.
Financial markets in Israel have reacted with clear optimism, appearing to price in only the favorable outcome of a political settlement. Over the past week, Israeli equities surged by roughly 7–8% although gains moderated on Sunday as trading resumed after the holidays. The shekel strengthened yesterday to below 3.30 per U.S. dollar, while benchmark 10-year government bond yields declined to 4.03%, approaching the 4% threshold, their lowest level since February 2024.
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