Israel's Economy Shrinks 3.3% in Q1 Due to Iran War

SadaNews - The Israeli Central Bureau of Statistics said on Sunday that the Israeli economy contracted at an annual rate of 3.3% during the first three months of 2026, as the gross domestic product was affected by the repercussions of the Israeli-American war on Iran.

On a per capita basis, Israel's economy shrank by 4.5%, according to Reuters.

The Israeli economy grew by 2.9% in 2025, and growth was expected to rise in 2026 to exceed 5% after a ceasefire was reached in the Gaza Strip last October.

However, the growth of the Israeli economy declined after the outbreak of the American-Israeli war on Iran on February 28, as ballistic missiles were launched from Iran at various locations in Israel over several weeks, causing millions of Israelis to enter shelters and slowing down many economic activities.

Previous Expectations

The Times of Israel reported that Shmuel Abramovitz, the chief economist at the Israeli Ministry of Finance, predicted at the end of March that the Israeli economy would decline by 9.5% annually and 2.5% quarterly based on economic activity indicators.

According to Reuters, the Bank of Israel currently expects the economy to grow by 3.8% by the end of this year, but these forecasts depend on how resilient the ceasefire, which was reached last month in the war on Iran, proves to be.

Consumer spending in Israel decreased by 4.7% in the first quarter of this year, exports fell by 3.7%, and government spending dropped by 4.8%, according to Reuters.

Inflation Rate

In the context, data released on Friday by the Israeli Central Bureau of Statistics showed that the annual inflation rate stabilized at 1.9% in April.

Expectations in a survey conducted by Reuters indicated that the inflation rate would reach about 2%, which is within the government's targeted annual range of 1% to 3%.

The consumer price index rose by 1.2% in April compared to March due to the repercussions of the war on Iran.

Source: Reuters