The Israeli economy contracted in the first quarter of the year, after the war with Iran imposed closures for security reasons on businesses for more than a month.
Gross domestic product declined by 3.3% on a seasonally adjusted annual basis, according to what the Central Bureau of Statistics in Israel announced today, Sunday, in a larger-than-expected contraction. The median forecast in a Bloomberg survey of seven economists had
indicated a contraction of 2% during the first three months, while the Ministry of Finance anticipated a contraction of 9.5% on an annual basis.
First Reflection of the War's Impact
This is the first growth report to reflect the impact of the war that broke out at the end of February, when the United States and Israel began launching strikes against Iran. In response, Tehran launched hundreds of missiles and
a similar number of drones toward Israel, while its loyalist Hezbollah group in Lebanon targeted its northern regions.
This is the first growth report to reflect the impact of the war that broke out at the end of February, when the United States and Israel began launching strikes against Iran. In response, Tehran launched hundreds of missiles and a similar number of drones toward Israel, while its loyalist Hezbollah group in Lebanon targeted its northern regions.
This prompted Israeli authorities to impose restrictions on gatherings during six weeks of fighting until a ceasefire agreement was reached between the United States and Iran in early April, causing disruptions to businesses and economic activity. More than 100,000 reserve
soldiers were also called up, and schools were closed for a month.
This prompted Israeli authorities to impose restrictions on gatherings during six weeks of fighting until a ceasefire agreement was reached between the United States and Iran in early April, causing disruptions to businesses and economic activity. More than 100,000 reserve soldiers were also called up, and schools were closed for a month.
June War Had Greater Impact
The Central Bureau of Statistics said in a statement that the war with Iran affected both private and public consumption, as they fell by 4.7% and 4.8% respectively. The business sector GDP also contracted by 3.1%, while GDP per capita decreased by 4.5%.
The economic contraction during the quarter was less severe than in the wake of the 12-day war with Iran in June 2025, which led to a complete halt for many companies. In that quarter, GDP contracted by 4.3%.
The Iranian response to Israel at that time was more intense, with no other countries targeted by its ballistic missiles. The two weeks witnessed the launching of a number of projectiles similar to what was launched in the recent war
that lasted six weeks. The Israeli economy had returned to growth in the final two quarters of 2025, and its performance accelerated over the year as a whole.
The Iranian response to Israel at that time was more intense, with no other countries targeted by its ballistic missiles. The two weeks witnessed the launching of a number of projectiles similar to what was launched in the recent war that lasted six weeks. The Israeli economy had returned to growth in the final two quarters of 2025, and its performance accelerated over the year as a whole.
Israel's Economic Growth Forecasts During 2026
The central bank and the Ministry of Finance in Israel expect growth to reach 3.8% this year, after they lowered forecasts from 5.2% and 4.8% previously, respectively. To achieve these goals, the economy needs to recover during the rest of
the year, which depends heavily on the continuation of the ceasefire in Iran, Lebanon, and the Gaza Strip.
The central bank and the Ministry of Finance in Israel expect growth to reach 3.8% this year, after they lowered forecasts from 5.2% and 4.8% previously, respectively. To achieve these goals, the economy needs to recover during the rest of the year, which depends heavily on the continuation of the ceasefire in Iran, Lebanon, and the Gaza Strip.
The Israeli economy lost 8.6% of annual GDP over two years until 2025 as a result of the state of almost continuous conflict, especially the war in Gaza that broke out following the Hamas attacks in October 2023.
