In recent years, and especially since the outbreak of the war, public debate over the state of Israel’s economy has swung between two poles. On one side are optimistic claims pointing to the relative strength of the shekel, a rebound in the stock market and the resilience of the high-tech sector. On the other are stark warnings of weak growth, a sharp rise in national debt, credit rating downgrades and the closure of thousands of small businesses.
Placing these competing narratives in proper proportion requires a long-term comparative view — one that filters out short-term fluctuations and extraordinary global events.
A review of Israel’s economic performance over the past 20 years compared with other OECD countries, based on International Monetary Fund data, offers such a perspective. The central indicator used is gross domestic product per capita adjusted for purchasing power parity, a standard measure among economists. The PPP-adjusted metric allows for meaningful cross-country comparisons by neutralizing differences in cost of living, unlike GDP measured at current prices, which can exaggerate prosperity in high-cost countries. For assessing living standards and long-term economic progress, PPP-adjusted GDP per capita is widely regarded as the most reliable benchmark.
In absolute terms, the data present a clear picture: Israel’s GDP per capita, adjusted for purchasing power, rose significantly over the past two decades. It more than doubled, from $25,069 in 2005 to $55,766 in 2025, reflecting a genuine improvement in living standards. But this figure must be viewed in context. The period was marked by accelerated global growth, particularly in developed economies but also across many emerging markets. In that sense, Israel’s strong performance was part of a broader global trend, underscoring the importance of examining Israel’s relative standing.
When Israel is compared with other OECD countries — a group of 38 developed economies with relatively high living standards — the picture becomes less dramatic. Israel has consistently ranked in the third quartile of the table, far from the leading tier. This stagnation feels like a missed opportunity. A country with a world-leading high-tech sector, a dense concentration of human capital and technological innovation might have been expected to achieve a higher level of GDP per capita and sharper upward mobility in the rankings.
Instead, a widening gap has emerged between Israel and the richest OECD countries. To enter the top 10 in 2025, GDP per capita would need to reach about $75,000 — roughly $19,000 more than Israel’s current level. Put simply: Israel has been running forward, but so have others, some of them faster.
This relative stagnation is not inevitable. Over the past 20 years, many countries have significantly accelerated growth in GDP per capita through bold economic policies, including deep structural reforms and substantial investment in infrastructure and human capital. A comparison with OECD countries ranked between 22nd and 30th in 2005 — a group that included Israel, then ranked 26th — highlights the divergence. While most of these countries recorded faster growth in GDP per capita, Israel posted a relatively modest cumulative increase of about 122%. Only Greece and Portugal, both severely hit by Europe’s sovereign debt crisis, performed worse.
The implications are not merely theoretical. Had Israel grown over the past two decades at the average rate of comparable countries unaffected by the European debt crisis — about 153% — its GDP per capita today would be roughly $63,500. That gap translates into an annual difference of more than 81,400 shekels for an average household. In this sense, Israel’s relative stagnation reflects not unavoidable external conditions, but policy choices that slowed its convergence with the world’s richest economies.
The bottom line is that Israel’s economic story over the past 20 years is neither one of failure nor of an unbroken miracle. Living standards have risen, the economy has expanded, and Israel clearly belongs among the world’s 50 richest countries. Yet international comparisons point to only partial fulfillment of economic potential. While many countries have narrowed gaps and accelerated their climb toward the global economic elite, Israel has remained stuck in place.
Despite a challenging security environment, sound policy could have propelled Israel’s economy further forward. Instead, the budget the government is expected to present does not signal a meaningful shift in the economy’s future growth trajectory. Without structural reforms, sustained investment in human capital across all sectors and a reordering of priorities, stagnation risks becoming the norm.
That danger is compounded by erosion in long-term growth forecasts, driven in part by damage to the high-productivity workforce — both as a result of the war and increased emigration abroad. In such a reality, maintaining the status quo is itself a choice — one that amounts to a gradual surrender of the position Israel could have achieved at the top tier of the global economy.
Esteban Klor is a professor of political economy at the Hebrew University of Jerusalem and a senior researcher at the Institute for National Security Studies.