The Israeli economy contracted in the first quarter of 2026 under the impact of conflicts with Iran, Hezbollah and Hamas. Israel's Central Bureau of Statistics announced that the economy shrank by 3.8 percent on an annualized basis.
The contraction was driven by declines in consumer spending, public expenditure and exports. In contrast, fixed asset investments rose by 12.6 percent, while investments in high-tech sectors surged by 61.6 percent. GDP per capita fell by 4.5 percent compared to the same period last year.

International credit rating agency Moody's cut its 2026 growth forecast for Israel from 5 percent to 3.7 percent. The agency pointed to rising geopolitical risks and the fragility of ceasefire agreements with Iran, Hezbollah and Hamas. Moody's stated that the fragile security environment continues to pose risks to the economic and fiscal outlook.
The International Monetary Fund (IMF) had also lowered its 2026 growth forecast for the Israeli economy from 4.8 percent to 3.5 percent in early July. The IMF stressed that the wars in Iran, Lebanon and Gaza were weighing on economic activity and increasing risks to the growth outlook.
The Bank of Israel, meanwhile, forecasts the economy will grow by 4 percent in 2026 overall. Economic growth is expected to recover in the second quarter of the year.