Key insights
- The Israeli Finance Ministry projects economic growth of 3.3%-3.8% in 2026, contingent on the duration of conflicts with Iran and Hezbollah. Prolonged fighting could reduce growth to 3.3%. Increased defense spending impacts the budget. While the direct impact on US equities is limited, the geopolitical uncertainty and potential for wider conflict introduce a slight bearish signal.
JERUSALEM, March 30 (Reuters) - Israel’s economy is expected to grow between 3.3% and 3.8% in 2026 depending on how long fighting continues in Iran and southern Lebanon, the Finance Ministry said on Monday.
In the most optimistic scenario, growth this year could reach as high as 3.8%, provided the war with Iran ends by mid-April and fighting with Iran-backed Hezbollah in Lebanon finishes by the end of April. But should fighting with Iran continue until the end of April and with Hezbollah through June, the economy would grow by just 3.3% this year.
Dented by the war with Hamas in Gaza, Israel’s economy grew 2.9% in 2025. In the wake of a Gaza ceasefire last October, growth was initially projected at 5.2% in 2026. The ministry trimmed that estimate to 4.8% in early March, just after the Iran air war broke out, as part of a revised 2026 state budget that included higher defence spending.
Parliament gave final approval to the defence-heavy 699-billion shekel ($221 billion) budget earlier on Monday, allowing Prime Minister Benjamin Netanyahu’s government to avert an early election as Israel’s joint war with the U.S. on Iran continues.
Failure to approve the budget would have likely triggered a snap election within 90 days.
For 2027, the ministry estimates economic growth of 5.3% to 6.1% depending on the length of the Iran and Hezbollah conflicts.
($1 = 3.1596 shekels)