The Finance Ministry in Jerusalem has released a forecast that places Israel’s 2026 economic growth between 3.3% and 3.8%, with the spread determined by the duration of ongoing hostilities involving Iran and Hezbollah in southern Lebanon.
In the ministry’s most favorable scenario, the economy could expand by as much as 3.8% in 2026 if the conflict with Iran ends by mid-April and fighting with Iran-backed Hezbollah in Lebanon concludes by the end of April. Conversely, a scenario in which hostilities with Iran persist through the end of April while Hezbollah-related fighting continues into June would see growth limited to 3.3% for 2026.
These projections follow a year in which the economy was affected by the war with Hamas in Gaza. Israel’s GDP grew 2.9% in 2025, a figure the ministry attributed to the impact of that conflict on the economy.
After a Gaza ceasefire in October, the ministry had initially penciled in 5.2% growth for 2026. That estimate was pared back to 4.8% in early March in the wake of the outbreak of an air war with Iran, and as part of a revised 2026 state budget that reflects higher defence outlays.
Parliament gave final approval earlier on Monday to the revised, defence-heavy state budget, a 699-billion shekel plan. The approval of the budget removed the immediate trigger for a snap election that would have been required within 90 days had the budget failed to pass. The government’s ability to secure parliamentary agreement therefore preserved the current political timetable while the joint war efforts with the U.S. on Iran continue.
Looking beyond 2026, the Finance Ministry offered a conditional outlook for 2027, forecasting economic expansion in a range from 5.3% to 6.1% depending on how long the conflicts with Iran and Hezbollah endure.
For reference, the ministry published an exchange rate alongside its release: $1 = 3.1596 shekels.
Outlook and context
The ministry’s figures tie short-term growth outcomes closely to the course of regional hostilities and reflect the fiscal adjustments embodied in the revised budget. The approved 699-billion shekel budget increases defence spending and was necessary to avoid the electoral timetable that would have followed a failure to pass the budget.