FX.co ★ Israel Economy Shrinks 3.3% in Q1

Israel’s economy contracted at an annualized rate of 3.3% in the first quarter of 2026, following a downwardly revised 2.9% expansion in the fourth quarter of 2025. This marked the first quarterly contraction since the second quarter of 2025 and reflected the economic fallout from the war with Iran. Consumer spending fell 4.7%, government expenditure declined 4.8%, and exports dropped 3.7%. In contrast, fixed investment rose 12.6%. The Bank of Israel currently forecasts GDP growth of 3.8% for 2026, contingent on the durability of the ceasefire reached with Iran last month. In 2025, the economy grew by 2.9% and had been expected to accelerate to above 5% growth in 2026, following an October ceasefire that brought an end to major hostilities in the two-year Gaza conflict.