Key insights
- Israel's Q1 GDP contracted 3.3% due to the US-Israeli conflict with Iran, impacting consumer spending, exports, and government spending. While investment rose, the overall economic outlook is uncertain and dependent on maintaining a ceasefire with Iran. The Bank of Israel projects 3.8% growth for the year, but the conflict introduces downside risk, potentially weighing on global market sentiment.
JERUSALEM, May 17 (Reuters) - Israel’s economy contracted at an annualised rate of 3.3% in the first three months of 2026, the Central Bureau of Statistics said on Sunday, as the war against Iran weighed on output.
The decline was not as severe as a 4% drop forecast in a Reuters poll of economists.
The economy grew 2.9% in 2025 and was expected to bounce back in 2026 to more than 5% growth after a ceasefire in October ended major fighting in the two-year Gaza war.
But growth took a hit after the start of a U.S.-Israeli conflict with Iran began on February 28, resulting in weeks of ballistic missile fire from Iran that closed schools while businesses suffered.
The Bank of Israel currently sees the economy growing 3.8% this year, depending on whether a ceasefire forged last month with Iran holds.
In the first quarter, consumer spending fell 4.7%, exports declined 3.7% and government spending shed 4.8%. Investment in fixed assets rose 12.6%.
On a per capita basis, the economy shrank 4.5%.