The International Monetary Fund announced, on Wednesday, reducing its estimates of economic growth in “Israel” for the current year 2026 to 3.5% from 4.8%.
In its report, the Fund also expected inflation to rise temporarily due to rising energy prices and supply restrictions, despite the rise in the value of the shekel to its highest level in more than 30 years against the dollar.
The fund said: “The escalating regional tension is casting a shadow on the Israeli economy,” referring to the American-Israeli aggression against Iran, and the aggression against Lebanon and the Gaza Strip.
The International Monetary Fund noted that the economy “has shown resilience despite repeated shocks, but it is expected that the increasing regional geopolitical uncertainty and long-term obstacles in the economic structure will negatively affect future expectations.”
The report added: “Moreover, renewed escalation in regional tension remains a major risk to lower expectations.”
The International Monetary Fund warned that Israel needs to implement “wise” policies to protect macroeconomic stability and move forward with structural reforms to enhance growth potential.
After achieving a growth rate of 2.9% in 2025, the war on Iran in March and April prompted the Bank of Israel (the Central Bank) to reduce its growth expectations in 2026 to 3.8%, while the Ministry of Finance expects growth of up to 4% this year.
The “Israeli economy” contracted at an annual rate of 3.8% in the first quarter.
The International Monetary Fund expects the “Israeli economy” to grow by 4.4% in 2027, with the inflation rate stabilizing at about 2% in 2026 and 2027.
The International Monetary Fund recommended that the Israeli occupation government rebuild its financial reserves, for example, by increasing revenues, in addition to achieving financial balance, due to the rise in defense spending to finance military conflicts.
The International Monetary Fund also called for a moderate tightening of monetary policy, in light of expectations that high energy prices will raise inflation rates.
In the past few weeks, the ceasefire agreement between the United States and Iran has led to a decline in oil prices.
The Fund said, “The Bank of Israel should continue to closely monitor the war-related repercussions on labor availability, the impact of rising energy prices and exchange rate fluctuations, and the impact of the most recent interest rate cut on financial conditions and domestic demand.”
