According to the updated forecast by the Chief Economist's Department, expected growth in 2026 has dropped from 5.2% to 4.7%. This is a reduction of only half a percentage point, and the estimate is based on a scenario in which the fighting in the north and in the Iranian arena lasts only a few weeks and does not escalate into a protracted war.
During times of war, some economic activity is halted or slowed. Businesses operate at a lower volume, many workers are called up for reserve duty, private consumption falls briefly, and uncertainty causes some companies to postpone investments. All of this together takes away a small portion of the growth that was expected for the economy this year.
However, on the other side of the picture lies a positive surprise. The state revenue forecast has been revised upwards, from NIS 575.3 billion to NIS 586.3 billion. The reason for this is that the state's tax revenue in January and February, before the outbreak of the war, was mostly higher than expected. According to the data presented by the Ministry of Finance, total tax revenue in this period was about 2.5% higher than the corresponding period last year.
This means that the Israeli economy continues to demonstrate a certain resilience even during a period of security tensions. The local capital market and the shekel remain relatively strong, and economic activity has not come to a widespread halt as has happened during extreme events in the past.
The Ministry of Finance emphasizes that the current forecast depends primarily on the development of the security situation. If the fighting ends soon, the economic impact is expected to remain limited. On the other hand, an expansion of the war or its continuation for months could lead to another update of the forecasts later this year.
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