The war in the Middle East may slow down Israel's economy, but it cannot stop it. The country's central bank revised its forecast for 2026 downward by 1.4 percentage points, but still expects impressive GDP growth of 3.8%. For an economy that has been at war for nearly three years, this is evidence of its high resilience to crises.
The technology sector remains the country's main driver. Since a large part of exports are in the software and cybersecurity sectors, physical disruptions have a smaller impact than traditional manufacturing.
Central Bank Governor Amir Yaron told the National Security Council on April 16 that if the conflicts in the region are resolved, Israel's economy could recover by 5.5% next year. year.
BBΠ continues to grow
The country's economy will grow by 3.5% this year, according to the International Monetary Fund. By comparison, the IMF predicts growth of 2.3% for the United States and about 1.3% for the European Union.
BBΠ is expected to grow by 3.5% this year. Israel to surpass that of all G-7 countries by 2026. Next year, the IMF forecasts economic growth for Israel of 4.4%, which will continue to outpace many large developed economies.
In addition, the country has fiscal flexibility. Despite its huge defense spending, Israel entered the conflict with a relatively low debt-to-GDP ratio (around 70%), allowing the government room to maneuver. And despite a slight increase compared to last year, it remains significantly lower than the G-7 average, which exceeds 123%.
Inflation and interest rates
At 1.9% in March, the country is comfortably within the "golden mean" of its target range of 1% to 3%. In practice, Israel has managed to maintain price stability, which at the moment seems unattainable for many countries even in peacetime.
According to analyses by Trading Economics and the Central Bank of Israel, low inflation is due to the strong shekel, which makes imports cheaper. There is also moderate consumer demand in certain sectors due to the uncertainty caused by the conflict. In addition, there is no planned increase in the VAT rate in 2026.
Price stability allows the Central Bank to keep interest rates stable around 4%. Slight cuts are even being considered to stimulate economic growth in the second half of the year.
Startup Nation
Even during wartime, Israel remains a world leader in the concentration of tech talent. Over 400 multinational companies such as Google, Microsoft, Apple and Intel have their strategic development centers there.
Nearly 30% of global investments in cybersecurity go to Israeli companies. This sector is practically immune to recession.
Energy independence
ΠFor 15 years, Israel was completely dependent on energy imports. Today, thanks to the "Leviathan" and "Tamar" discoveries in the Mediterranean Sea, the country is a net exporter of gas to Egypt and Jordan.
This ensures cheap energy for industry and huge revenues for the state budget through a special "Sovereign Fund", which accumulates profits for future generations.