Discount Bank Review: Israeli Economy Resilient, TA-125 Surges 38%
Discount Bank chief strategist Shmuel Katsavian reports that Israel's economy grew resiliently over the Hebrew year, with the Tel Aviv 125 surging 38% and the shekel hitting record highs.
Shmuel Katsavian, chief strategist at Discount Bank, has released an economic review summarizing the trends of the outgoing Hebrew year in Israel's economy and capital markets. Despite security challenges and the war with Iran, economic activity in Israel grew at a stable and positive rate over the past Hebrew year.
Economic Growth and Output Gap
According to two different calculation methods, growth over the past Hebrew year was comparable to or slightly higher than the 10-year average preceding the Swords of Iron war. While an output gap still exists compared to pre-war trends, this gap has narrowed significantly. The monthly economic activity index published by the Bank of Israel indicates that growth reached between 3.7% and 4.6%, depending on the methodology used. The Gross Domestic Product is now only 0.8% below its pre-war trajectory, driven by robust performance in the second quarter of 2026.
Stock Market Outperformance
The Tel Aviv 125 Index surged by approximately 38% over the past Hebrew year, delivering exceptional outperformance compared to global stock markets. Over the past two consecutive Hebrew years, the Tel Aviv 125 Index recorded a cumulative outperformance of about 46% over global equities. This marks a record two-year outperformance streak since the launch of the Tel Aviv 100 Index in early 1992.
"The Tel Aviv 125 Index generated a total return of about 38%, representing the fourth-strongest return for a Hebrew year since the early 1990s, coming right on the heels of the previous year's stellar performance," Katsavian noted in his review.
Shekel Strength and Bond Market
The shekel demonstrated strong performance for the second consecutive year, outperforming all major global currencies and sharply defying consensus forecasts from a year ago. The cumulative strengthening of the shekel against the US dollar over the past two years reached a record high of approximately 21%, with the exchange rate trading around the 3.00 USD/ILS level compared to analyst predictions of 3.40.
Meanwhile, Israel's government bond market performed exceptionally well compared to Western bond markets, recording declining yields amid falling inflation, a shrinking fiscal deficit down to 3.2% of GDP, and a lowered risk premium.
