Israel Economy Contracts 3.8% in Q1

Israel’s economy shrank at an annualized rate of 3.8% in the first quarter of 2026, following a downwardly revised 2.8% growth in the previous quarter, matching preliminary estimates. The contraction was driven largely by the "Harry’s Uproar" war, which disrupted economic activity. Domestic demand weakened, with consumer spending falling 4.9% and public consumption declining 4.8%. Net trade also weighed on GDP, as imports of goods and services, excluding defense imports, ships, aircraft, and diamonds, rose 1.8%, while exports of goods and services, excluding start-ups and diamonds, fell 32.7%. On the other hand, fixed asset investment increased by 12.8%.

Israel’s economy shrank at an annualized rate of 3.8% in the first quarter of 2026, following a downwardly revised 2.9% growth in Q4 2025, according to secondary estimates. The quarter's results were significantly affected by the "Harry's Roar" war, which disrupted economic activity and weighed on domestic demand. Private consumption declined 5.0%, while public consumption fell 4.8%. Meanwhile, business-sector output also contracted by 3.8%, adding to the weakness in overall economic activity. These declines were partially offset by a 12.8% increase in fixed asset investment. On the external front, exports of goods and services, excluding start-ups and diamonds, rose a modest 1.9%, while imports surged 32.7%, excluding defense-related imports, ships, aircraft, and diamonds.

Israel's economy contracted at an annualized rate of 3.3% in the first quarter of 2026, reversing a downwardly revised 2.9% growth in the fourth quarter of 2025. It was the first contraction in the economy since the second quarter of 2025, due to the impact of the war with Iran. Consumer spending dropped 4.7%, government spending fell 4.8%, and exports declined 3.7%. By contrast, fixed investment grew 12.6%. The Bank of Israel currently expects the economy to grow by 3.8% this year, depending on whether the ceasefire reached last month with Iran holds. Last year, the country’s economy grew 2.9% in 2025 and was expected to rebound in 2026 to more than 5% growth following a ceasefire in October that ended major fighting in the two-year Gaza war.