Israel's economy contracted by 3.8 percent in the first three months of 2026, under the impact of conflicts with Iran and other regional actors. According to data released by Israel's Central Bureau of Statistics, the contraction was driven by a decline in consumer and public spending.
In contrast, fixed asset investments rose by 12.6 percent, while investments in high-tech sectors surged by 61.6 percent. Gross domestic product per capita fell by 4.5 percent compared to the same period last year.
US-based credit rating agency Moody's lowered its 2026 growth forecast for Israel from 5 percent to 3.7 percent. The agency pointed to rising geopolitical risks and the fragility of ceasefire agreements with Iran, Hezbollah and Hamas.

Moody's kept Israel's credit rating at 'Baa1' with a 'stable' outlook. The report stated that the fragile security environment continues to pose risks to the economic and fiscal outlook.
The International Monetary Fund (IMF) had also lowered its 2026 growth forecast for the Israeli economy from 4.8 percent to 3.5 percent in early July. The IMF had stressed that the wars in Iran, Lebanon and Gaza were weighing on economic activity.
The Bank of Israel, meanwhile, expects the economy to recover in the second quarter of the year and grow by 4 percent overall in 2026.