IMF Cuts “Israel” Economic Growth Forecast for 2026 to 3.5%

By Staff, Agencies 

The International Monetary Fund [IMF] on Wednesday lowered its projection for "Israel’s" economic growth in 2026 to 3.5%, down sharply from a previous estimate of 4.8%, citing heightened regional tensions and geopolitical uncertainty.

In its latest assessment, the IMF warned that the ongoing wars on Gaza, Lebanon, and Iran are casting a long shadow over the economy. While "Israel" has demonstrated remarkable resilience in the face of repeated shocks, the Fund said that elevated regional instability and long-standing structural bottlenecks are expected to weigh heavily on the outlook.

"The elevated regional tensions are casting a shadow on ‘Israel’s’ economy", the IMF said in its report, noting that "renewed intensification of regional tensions remains a key downside risk".

The Fund also projects a temporary uptick in inflation, driven by higher energy prices and supply constraints, despite the “shekel” appreciating to a more than three-decade high against the US dollar, a move that would typically help curb import costs.

The revised IMF figure comes after the Bank of “Israel” trimmed its own 2026 growth forecast to 3.8% in the wake of the March-April war with Iran, while the Finance Ministry expects expansion of up to 4% this year. "Israel’s" economy contracted at an annualized rate of 3.8% in the first quarter of 2026, following a 2.9% growth rate in 2025.

Looking ahead, the IMF projects a rebound to 4.4% growth in 2027, with inflation holding steady near 2% over both 2026 and 2027. The Fund noted that all forecasts are based on data available up to June 10.

Preliminary estimates from the “Israeli” Finance Ministry indicate that the US-“Israeli” war on Iran has cost the “Israeli” budget approximately 35 billion “shekels” [$11.52 billion], including 22 billion “shekels” allocated to the security sector. The ministry confirmed on April 13 that the amount has already been incorporated into the 2026 budget.

In mid-March, as the war escalated, the government approved additional emergency allocations worth 2.6 billion “shekels” [$827 million] for urgent weapons procurement.

According to ministry estimates, the increased spending is expected to push the fiscal deficit from the previously targeted 3.9% of GDP to a range between 4.9% and 5.6%. The ministry also assessed that economic losses resulting from the war on Iran were running at around 9 billion “shekels” [$2.93 billion] per week.

Citing Channel 12, media reports said that the cost of 40 days of war on Iran and Lebanon, encompassing both military and civilian expenditures, could reach approximately $17.5 billion. Direct military spending is estimated at roughly 40 billion “shekels” [$12.9 billion], while civilian costs, including compensation for affected businesses and local authorities, are projected at 13–14 billion “shekels” [$4.2–4.5 billion], bringing the total to about 54 billion “shekels” [$17.5 billion].

The ministry noted that the figures remain preliminary and do not account for future reconstruction costs or broader economic losses caused by the partial shutdown of the economy. To support military needs, an additional 7 billion “shekels” [$2.3 billion] has been allocated for weapons procurement, flight operations, reserve duty, and war-related damages.

Compensation under property tax is estimated at 12–13 billion “shekels”, alongside 1 billion “shekels” allocated for unpaid leave schemes and support to local authorities. As of Thursday morning, 28,237 claims for direct damage had been filed, with the highest numbers reported in “Tel Aviv”, “Bir al-Sabe’”, “Arad”, “Petah Tikva”, “Dimona”, and “Beit Shemesh”.

Meanwhile, “Israeli” media reported about two weeks ago that fuel prices had surpassed 8 “shekels" per liter, triggering growing public anger amid mounting economic pressures. According to i24NEWS, the increase was driven by a surge in global oil prices, with crude exceeding $100 per barrel compared to around $70 at the beginning of the year, directly impacting gasoline prices in the domestic market.

The latest estimate of roughly $17.5 billion for 40 days of war on Iran and Lebanon underscores the growing strain on the “Israeli” economy. That cost follows the 2024 wars on Gaza and Lebanon, which together reached about $31 billion, pushing war spending far above budgeted levels and contributing to a widening deficit.