Macroeconomic and geopolitical developments – Weekly report, December 10, 2025
This week’s indicators suggest that the economy is transitioning from a post-war rebound to a more stable and sustainable growth path. Retail activity normalized, while business expectations improved, signaling that firms anticipate stronger orders and output in early 2026. Fiscal data were once again better than expected, with the 12-month trailing deficit falling to 4.5%. Taken together, the fiscal figures reinforce the view that Israel can absorb the elevated 2025 defense spending without jeopardizing its overall fiscal stability.
The 2026 budget was approved with a 3.9% deficit target and NIS 112 billion in defense spending, and the Ministry of Finance’s deficit forecast for next year currently appears reasonable. High-tech activity remains robust, supporting the shekel.
Geopolitically, U.S. pressure to advance the next phase of the Gaza plan has intensified in recent weeks. Successful implementation of Phase B would add a degree of geopolitical certainty and reduce both geopolitical and fiscal risks heading into 2026.
On the inflation front, the November CPI, to be published next Monday, is expected to decline by around 0.4%, driven mainly by seasonal factors. We will focus on core inflation, which eased to 3.0% year-on-year in October, and on core inflation excluding fruits, vegetables, and energy, which stood at 2.7%. A soft November reading would strengthen the case for an additional rate cut, potentially as early as the January 2026 meeting, while an upside surprise would likely postpone further easing to February or beyond.
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