Macroeconomic and geopolitical developments – Weekly report, October 1, 2025
In the past week, Israeli markets and policy were shaped by two dominant forces: geopolitics and monetary policy. On the geopolitical side, Trump’s 20-point Gaza plan dominated headlines, offering a comprehensive framework that received broad international support but faces uncertainty around Hamas’s acceptance and Israel’s internal politics. From an economic perspective, a deal along these lines could fundamentally shift Israel’s trajectory for 2026 and beyond, easing fiscal pressures, averting a potential credit-rating downgrade, creating room for the Bank of Israel to begin cutting rates, and strengthening the shekel. Reconstruction in Gaza would also generate opportunities for Israeli companies, while equities rallied 7.1% over the past two sessions as markets priced in a higher probability of such a scenario. That said, Hamas has yet to deliver an official response, and significant obstacles remain on the Israeli side, meaning volatility and uncertainty are likely to persist.
On the domestic economic front, the Bank of Israel held rates at 4.5% with a hawkish tone, stressing fiscal discipline, persistent inflation risks, and labor-market tightness. The central bank revised its 2025 growth forecast down to 2.5% but maintained an optimistic outlook for 2026 at 4.7%. Inflation was revised up to 3.0%, reflecting mobilization and supply bottlenecks. Wages accelerated in August, rising 5% year over year (3.1% in real terms), reinforcing inflation pressures and influencing the rate decision. Private consumption remained resilient, with credit-card data pointing to ongoing expansion in Q3 despite monthly volatility, while industrial output rebounded sharply in July on the back of high-tech manufacturing. Credit markets remain robust, mortgage demand is firm, and corporate bond issuance active. In fixed income, government bonds rallied, with the 10-year benchmark yield falling to around 4.1%.
Looking ahead, Israel is entering an extended holiday period, with most agencies closed and very few trading days until October 15. Few data releases are expected, leaving market focus fully on geopolitics.
Now read on...
Register to sample a report