IMF cuts Israel's 2026 growth forecast to 3.5% amid tensions

The International Monetary Fund (IMF) lowered its 2026 growth forecast for Israel to 3.5%, citing rising regional tensions that are casting a shadow over the economy.

Scraper SystemJuly 01, 2026, 11:07 PM

IMF cuts Israel's 2026 growth forecast to 3.5% amid tensions

The International Monetary Fund (IMF) Executive Board concluded its 2026 Article IV consultation with Israel. In a statement from the Fund, it said that rising regional tensions in the Middle East are casting a shadow over the Israeli economy.

Growth Forecast Lowered

According to the statement, the 2026 growth forecast, which had been projected at 4.8% before the war, was revised down to 3.5% due to a sharp contraction in the first quarter and an expected limited recovery for the rest of the year.

Inflation and Risks

Despite the shekel's appreciation, higher energy prices and supply constraints are expected to temporarily push inflation up. Risks to the growth outlook are seen as tilted to the downside, while inflation risks are on the upside. Deeper and more prolonged regional conflict remains a key concern.

Medium-Term Challenges

The economic repercussions of the conflicts and long-standing challenges in the labor market are putting pressure on the medium-term outlook. According to the IMF, rebuilding fiscal buffers, boosting labor supply and productivity, and ensuring price and financial stability rank among the key priorities.

Defense Spending and Labor

The statement expressed expectations that defense spending will remain high due to the ongoing conflicts and that labor supply will remain constrained by military mobilization and reduced access to non-Israeli workers. It emphasized that these pressures would exacerbate structural difficulties, such as low participation rates among certain groups, and slow the medium-term economic outlook.