IMF lowers Israel's 2026 growth forecast to 3.5% amid rising tensions

The International Monetary Fund (IMF) has lowered its 2026 growth forecast for Israel to 3.5%, citing rising regional tensions that are casting a shadow over the economy.

Scraper SystemJuly 01, 2026, 11:21 PM

IMF lowers Israel's 2026 growth forecast to 3.5% amid rising tensions

The International Monetary Fund (IMF) Executive Board has concluded its 2026 Article IV consultation with Israel. In a statement, the fund said that rising regional tensions in the Middle East are casting a shadow over Israel's economy.

Growth forecast lowered

According to the statement, the 2026 growth forecast, which stood at 4.8% before the war, has been revised down to 3.5%, reflecting a sharp contraction in the first quarter and a limited recovery expected for the remainder of the year.

Inflation and risks

Despite the appreciation of the shekel, rising energy prices and supply constraints are expected to temporarily push inflation higher. Risks to the growth outlook are assessed as downward, while inflation risks are seen as upward. Deeper and longer-lasting regional conflict remains the primary concern.

Medium-term challenges

The economic fallout from the conflict and long-standing labor market difficulties are weighing on the medium-term outlook. According to the IMF, rebuilding fiscal buffers, boosting labor supply and productivity, and ensuring price and financial stability are listed as key priorities.

Defense spending and labor

The statement expressed expectations that defense spending will remain high due to ongoing conflicts, and labor supply will remain constrained by military mobilization and reduced access to non-Israeli workers. It was emphasized that these pressures will exacerbate structural challenges such as low participation rates among certain groups, slowing the medium-term economic outlook.