Opposition parties are projected to win 68 of the Knesset's 120 seats at Israel's next election

Regardless of election timing and outcome, political risk will weigh on private sentiment

FrontierView anticipates that legislative elections in Israel are likely to be brought forward from October 2026 to Q4 2024 or Q1 2025.

In the base case, we expect these elections to be won by parties opposed to Prime Minister Benjamin Netanyahu and his governing coalition. Polls indicate that an opposition bloc would win 68 of the Knesset’s 120 seats if elections were held now. However, the opposition would likely need the support of Arab-Israeli parties to form a government, potentially complicating efforts to do so. 

We assess that the chances of an election leading to inconclusive results or to Netanyahu continuing as premier have risen. FrontierView does not rule out a series of inconclusive elections taking place over a short period. We assess the likelihood of such a scenario at 40%, with the base case set at a 60% likelihood.

We expect that regardless of the composition of the next government, we are highly likely to see:

  • Permanently increased defense spending: Israel’s military plans to lengthen mandatory and reserve service. The number of reservists on active duty will rise from 130,000 to about 360,000, with civilian salaries and benefits compensated by the military.
  • Reduced spending at nonmilitary government departments: About NIS 55 billion in spending cuts will have to be made to the 2025 budget, representing about 10% of projected expenditure. This could take the form of across-the-board cuts to most ministries, as occurred in the revised 2024 budget.
    • However, an opposition victory in the next elections increases the likelihood that a greater share of the cuts will come from right-wing focus areas such as religious schools or illegal construction in the occupied West Bank.
  • An increased tax burden: At a minimum, Israel’s VAT rate will rise from 17% to 18% in 2025. Israel’s finance ministry is also considering a freeze on income tax brackets and the value of tax credits for 2025, increased sales taxes on vehicle purchase, and a cancellation of VAT breaks on certain consumer goods.


Pressure has grown on PM Netanyahu to accept a ceasefire agreement mediated by the US that would bring an end to the war in Gaza and facilitate a hostage exchange. Protests led by hostage families have grown larger and more frequent. Opposition leader Benny Gantz has said he will leave Netanyahu’s war cabinet if no clear postwar plan for Gaza is released by June 8, with Israel’s defense minister and military brass known to share Gantz’s concerns. Netanyahu’s extreme right-wing coalition partners have threatened to exit the coalition and bring down the government should he opt to take the existing ceasefire agreement.

Business Implications:

  • Consumer Demand: Firms should anticipate only a gradual recovery of consumer spending through H2 2024 and in 2025, regardless of the outcome at the next elections. Confidence will remain weak for the duration of fighting in Gaza and would face further severe impacts in the event of all-out war with Hezbollah. Regardless of the outcome at the next elections, tax increases will raise price sensitivity among consumers and disproportionately impact low- and low-middle-income households and households with large families. An opposition-led government would be more likely to increase state rental assistance and invest in public housing.
  • Business Demand: Multinationals should expect a slight improvement in business confidence in the event of an opposition victory at the next elections. An opposition victory that lowers political and geopolitical risk perceptions may help the Bank of Israel (BOI) accelerate or deepen its pivot toward cutting interest rates, easing financing constraints on Israeli businesses. However, the significant planned increase in reservists on active duty may keep wage growth higher than it would otherwise have been over the short term.
  • Tourism: Regardless of the outcome at the next elections, we expect tourist inflows in 2024 to fall back to pandemic-era levels due to heightened security risks. A modest recovery is likely in 2025, but inflows are unlikely to return to pre-pandemic peaks in the near term.
  • Operating Environment: Israel’s political environment will remain highly polarized over the medium term, with committed protest groups active on either side of the political divide. The NIS will remain undervalued relative to fair value through 2024, although exchange rate volatility will be limited effectively by BOI policy. We continue to forecast a gradual decrease in Israel’s average inflation rate in 2024 and 2025, although inflation will remain higher than long-run averages.

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