₪177B lost wartime GDP. Strategic defense M&A heats up. Food sector profits surge.
Today in Israel - and what it all means for the business community at home and abroad.
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Quick takes:
Macro: The Bank of Israel's 2025 wrap-up reveals a staggering ₪177 billion in lost GDP since the war's onset.
Tech & Defense: Defense micro-caps Solrom and RSL secure strategic M&A and Tier-1 aerospace contracts; The Jerusalem Post Group injects ₪17 million into Tondo Smart's dual-use infrastructure pivot; Above Security emerges from stealth with a $50M raise.
Capital Markets: Ormat Technologies capitalizes on AI energy demand with a massive $1 billion convertible debt raise; Willi-Food reports a 25.8% annual profit jump driven by wartime stockpiling.
Editor’s Note
The Bank of Israel’s 2025 report lays bare the staggering macroeconomic toll of a two-year, multi-front war. A ₪177 billion crater in lost GDP and a ballooning ₪350 billion overall conflict price tag confirm that the domestic economy is fundamentally rewiring itself. The chronic labor shortage, exacerbated by relentless reserve duty and a freeze on ‘Palestinian’labor, has choked traditional growth engines like construction and hospitality, dragging the national deficit to 4.7% and pushing the debt-to-GDP ratio near 70%.
Yet, underneath the grim sovereign metrics, corporate Israel is demonstrating ruthless adaptability. We are witnessing a massive reallocation of capital away from consumer-facing vulnerabilities and directly into defense, energy, and dual-use infrastructure. Companies are capitalizing on soaring global defense budgets, securing strategic M&A and Tier-1 aerospace contracts to feed the insatiable demand for kinetic and autonomous solutions.
Meanwhile, major players in the energy and tech sectors are leveraging the AI and data center boom to secure cheap debt, proving that top-tier Israeli multi-nationals remain insulated from domestic sovereign risk. The economy is currently operating on two diverging tracks: a suffocating domestic labor market bearing the brunt of the kinetic headwinds, and a hyper-agile tech and defense sector aggressively expanding its global footprint. The state’s ability to bridge this gap will dictate the trajectory of the 2026 recovery.
Macro
The Bank of Israel released a comprehensive 2025 report, quantifying the severe economic damage of the protracted conflict. While GDP managed a 2.9% expansion in 2025 (up from 1% in 2024), it remains well below the economy’s long-term growth trajectory. The central bank estimates cumulative lost GDP since the war began will reach ₪177 billion by the end of 2025, roughly 8.6% of annual GDP. The total fiscal cost of the war between 2023 and 2026 is now projected at a massive ₪350 billion, pushing the 2025 government deficit to 4.7% and driving the debt-to-GDP ratio up to 68.5%.
A severe labor crunch remains the primary bottleneck for the domestic economy. Extensive military reserve duty and the ongoing absence of ‘Palestinian’ workers have driven business sector wages up, while unemployment remains artificially tight at 3%. Adding minor structural pressure, the demographic balance flipped negative, with approximately 20,000 Israelis leaving the country annually across 2024 and 2025. On the monetary front, inflation cooled to 2.6%, falling back within the target range and allowing the central bank to cut the baseline interest rate to 4%.
Our take: The BOI data confirms that the domestic economy is suffering from severe supply-side exhaustion. The combination of an acute labor shortage and demographic outflow is inherently inflationary for wages, complicating future rate cuts. With the state forced to extract an additional 1.5% of GDP in new taxes, over half of which fell on the top income quintile, the government is dangerously close to maxing out its domestic revenue base. Investors should anticipate heavy sovereign debt issuance and structurally higher borrowing costs for domestic-facing equities throughout 2026.
Tech & Defense
Solrom Holdings (TASE:SLRM) executed its first strategic M&A move since its 2024 merger, acquiring a defense integration firm for an immediate ₪3.2 million (cash and stock) plus a ₪2 million earnout. The target company brings a ₪15 million order backlog and will integrate its hardware/software capabilities directly into Solrom’s Quantum Cascade Laser (QCL) defense systems, accelerating the deployment of next-generation laser tech for the IDF.
RSL Electronics (TASE:RSEL) secured a strategic win with US defense giant Lockheed Martin, scoring a $259,000 initial order to supply a proprietary braking controller for a new aircraft in development. The contract covers prototyping and ground-test equipment slated for Q4 2026 delivery. RSL expects successful integration to unlock lucrative follow-on orders for landing simulation systems, driving the stock up nearly 9% in early trading.
The Jerusalem Post Group is executing a strategic pivot into infrastructure technology, committing a ₪17 million investment into Tondo Smart (TASE:TNDO). The investment capitalizes on Tondo's 282% year-to-date equity rally and will fuel the company's international expansion. Tondo specializes in Infrastructure Intelligence, utilizing a core AI engine and smart endpoints to manage municipal grids.
Our take: The flurry of deal flow across Israel’s tech and defense micro-caps underscores a fierce premium on specialized, dual-use assets. Solrom’s bolt-on acquisition and RSL’s critical step with Lockheed Martin prove that agile local players are successfully parlaying immediate domestic defense needs into long-term, Tier-1 global supply chain integration. Meanwhile, the Jerusalem Post’s play for Tondo Smart reveals that non-traditional capital is aggressively hunting yield in the AI and smart-infrastructure space.
For investors, the takeaway is clear: as sovereign defense budgets swell globally, these targeted M&A maneuvers and strategic international partnerships are building highly defensive, long-tail revenue moats for the TASE's smaller defense and tech equities.
Cybersecurity startup Above Security emerged from stealth, announcing it has raised an impressive $50 million across Seed and Series A rounds within just six months of its 2025 founding. Backed by Ballistic Ventures, Merlin Ventures, and Norwest, the Tel Aviv and San Francisco-based firm utilizes AI agents acting as autonomous threat investigators to preemptively identify and neutralize insider threats, both from human employees and compromised AI tools operating within corporate networks.
Capital Markets
Food importer Willi-Food (TASE:WLFD) reported a robust 2025, with annual net profit increasing 25.8% to ₪91 million on ₪610 million in revenue (+6% YoY). The top-line growth was heavily driven by a 26.3% spike in grain, rice, and pasta sales (₪74 million), reflecting a shift toward consumer stockpiling of non-perishables during the prolonged conflict.
Despite a 6.8% dip in Q4 operating profit (₪15 million) due to elevated marketing and general expenses, annual operating profit jumped 36.3% to ₪73 million. The company maintains a highly liquid balance sheet with ₪148 million in cash (+20.3%) and distributed ₪50 million in dividends, while aggressively investing ₪98.3 million into a new logistics center to shore up supply chain resilience.
Ormat Technologies (TASE:ORA) successfully closed a massive $1 billion private offering of convertible senior notes, upsizing the issuance from an initial $750 million due to overwhelming institutional demand.
The debt is split into an $825 million Series A tranche carrying a mere 1.5% interest rate, and a $175 million Series B zero-coupon (0%) tranche. Both mature in 2031 and carry a 30% conversion premium. Management is utilizing the capital to retire older, more expensive debt and fuel aggressive expansion into the AI and Data Center energy market, riding the momentum of a strong 2025 that saw revenues climb 12.5% to roughly $1 billion.
TASE snapshot for Tuesday, March 25, 2026
TA-35 Index (TASE:TA35): 🔴 -1.17%
TA-90 (TASE:TA90): 🔴 -1.34%
TA-125 (TASE:TA125): 🔴 -1.23%
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Disclaimer: This brief is for informational purposes only and does not constitute investment advice. All data current as of publication date.