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There is still no recession in the United States, nor does one appear imminent in Israel. Yet in 2025’s volatile global economy, even a noncommittal answer from U.S. President Donald Trump on the issue was enough to send stock markets plunging worldwide, rattle currency markets, and prompt emergency board meetings at companies around the globe. But what exactly is a recession — and why does the mere mention of the word trigger anxiety and upheaval in the financial world?
By standard definition, a recession is a prolonged period — typically at least two or three consecutive quarters — of slowed economic activity across an entire economy.
A significant recession, as many countries including Israel have experienced over the years, often leads to falling prices, a sharp decline in production, reduced trade and major job losses that can take years to recover from.
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The mere mention of the word recession triggers anxiety and upheaval in the financial world
(Photo: AP)
The direct consequence of a recession is a substantial deterioration in citizens’ economic well-being, particularly for lower-income households. Companies are often forced to scale back operations, lower prices, and lay off employees—sometimes leading to bankruptcy.
Economists, including several Nobel Prize winners, describe recessions as among the most serious threats to an economy. Even worse, they say, is stagflation — a recession combined with high inflation. In such a scenario, prices soar while wages fall, pushing many into poverty and leaving large numbers unemployed.
Generally, economists consider a significant drop in GDP over at least two consecutive quarters as the threshold for a recession. In Israel, where population growth is among the highest in the world, a key measure is whether there is negative per capita growth — even if overall growth remains positive.
For example, in the last quarter of 2024, Israel posted 0.9% GDP growth. But when adjusted for population growth, per capita growth was negative 0.4%. In other words, despite the nominal growth, Israelis’ average standard of living declined during 2024, a year marked by war.
Still, despite negative per capita growth, there are currently no clear signs that Israel is entering a recession, particularly as long as the fighting does not resume. According to the Bank of Israel, a recession is defined as a period when the national GDP does not grow at all. By that measure, Israel is not in recession, despite the strains of war, extensive military reserve call-ups, high government spending, and tens of thousands of displaced citizens from northern and southern communities.
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A few words from Donald Trump is enough to bring down the world's stock markets
(Photo: Roberto Schmidt / AFP)
In the U.S., the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy and lasting more than a few months.” Despite Trump’s evasive response when asked about the possibility of a recession, the United States has not yet reached that point. However, there is concern. Trump’s trade policies and inflammatory rhetoric toward nations like Canada, Mexico, China, and the European Union have already shaken global markets. If these policies continue, combined with Trump’s warnings and threats, experts warn that further stock market declines could push the global economy toward recession. Just Monday, the Nasdaq lost $1.25 trillion in value.
Israel has weathered several difficult recessions in its history. The most famous global example remains the Great Depression of 1929, triggered by the crash of the New York Stock Exchange. In 2008, the subprime mortgage crisis sparked similar fears of a global recession, though those fears faded within months.
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Israel’s first major recession came in 1952-53, when the young state, struggling with isolation and economic hardship, introduced government work programs to employ its citizens. In 1966, a recession emerged due to government mismanagement, but was unexpectedly reversed by the outbreak of the Six-Day War, which boosted economic activity.
Other significant recessions followed: in 1976-77 during the period of currency devaluation; in 1984 during the bank stock crisis and hyperinflation; and in 1989 during the first intifada. The second intifada and the global tech bubble burst in 2001-02 also triggered a deep recession. More recently, the COVID-19 pandemic in 2020 caused unemployment to spike to 27.5%, but Israel was the first country to emerge from that crisis with strong growth — until the Iron Swords War in 2024, which so far has not resulted in a new recession.
Is there a risk of a recession in Israel now?
Yaniv Pagot, deputy CEO of the Tel Aviv Stock Exchange, told Ynet: “The answer is a clear no. Israel is at a different point in the economic cycle than the U.S. While Israel is emerging from a long war, which is expected to boost economic activity, U.S. growth is forecast at just 2% this year — even before factoring in the impact of Trump’s policies, which could dampen growth.”
Yaniv Pagot, deputy CEO of the Tel Aviv Stock ExchangePhoto: Nikki WestphalPagot added that much of Israel’s economic activity relies on domestic consumption, which is expected to continue growing in the coming year. Government spending remains high, and Israel’s exports are less exposed to global trade tensions. “If the U.S. does fall into recession, there will be an impact on Israel,” he said. “But we have enough local growth engines to maintain reasonable growth rates. In the U.S., however, if Trump’s policies are fully implemented, there’s a real risk of stagflation, which would be bad news for everyone.”
Dr. Ron Tomer, president of the Manufacturers Association of Israel, said the Israeli economy is already showing signs of slowing, and recession may be inevitable. “Developments in the American economy will affect us too,” he said. “The decline in business output in 2024, combined with labor shortages and high interest rates, is creating economic pressure.”
Dr. Ron Tomer, president of the Manufacturers Association of IsraelPhoto: Tal ShaharTomer emphasized that Israel’s economy rests on solid foundations: low unemployment, a strong business sector, and global trade ties. He also pointed to Israel’s trade agreements with the U.S., the European Union, and other partners as a key advantage, shielding it from widespread tariffs and even opening opportunities to strengthen its export position.
However, Tomer cautioned that the global slowdown in trade and consumption could still affect Israel’s economy.
Shahar Turgeman, president of the Federation of Israeli Chambers of Commerce, expressed deeper concern. He blamed government policies for potentially pushing Israel toward recession. “The budget offers no growth incentives. It’s filled with measures that suppress both private citizens and the business sector,” he said, citing VAT hikes, frozen tax brackets, increased national insurance payments, and new taxes on business profits.
Shahar Turgeman, president of the Federation of Israeli Chambers of Commerce Photo: Orel CohenTurgeman warned that households are already losing an average of 1,000 shekels per month in disposable income, totaling 12,000 shekels annually — equivalent to a full month’s salary. On top of that, businesses are facing higher expenses from increased municipal taxes, water and electricity rates, and minimum wage requirements.
Uri Tuval, CEO of Tuval Investment House and chairman of Almenda Capital, offered a more optimistic view. He predicted significant economic growth for Israel in 2025. “The war presented challenges, but it also created opportunities,” Tuval said. He pointed to lower-than-expected deficit figures and anticipated diplomatic progress as reasons for confidence.
“Compared to the U.S., Israel’s debt burden is lower than other developed markets and OECD countries,” he said. “Israel isn’t entangled in trade wars — its primary challenges remain security-related.”