After three years of Israel’s multi-front struggle within the Center East, it could be no shock if this month’s Knesset elections had been happening towards the backdrop of an financial system in dire straits.
As an alternative, Israel’s financial system is – by many measures – flourishing.
After slowing sharply within the preliminary aftermath of the Hamas-led October 7, 2023 assaults and Israel’s genocidal struggle on Gaza, Israel has rebounded to grow to be one of many fastest-growing superior economies lately.
Gross home product (GDP) grew 2.9 % in 2025, choosing up from a 1 % growth in 2024, and three.2 % within the first half of this 12 months, in response to authorities figures.
The Financial institution of Israel has forecast 4 % progress for the entire of 2026 and 5.5 % progress in 2027 – projections that far exceed the outlooks for main economies reminiscent of the USA, United Kingdom, France, Canada, and Japan.
Over the previous three years, the shekel has strengthened towards the US greenback, hitting a three-decade excessive in Could, and Israel’s inventory market has surged, with the benchmark TA-125 up greater than 110 %.
In the meantime, unemployment stands at 2.8 %, whereas inflation is modest at 1.5 %.
In opposition to this comparatively rosy financial backdrop, campaigning for the October 27 election has been dominated by nationwide safety, with Prime Minister Benjamin Netanyahu, chief of the right-wing Likud social gathering, and retired basic Gadi Eisenkot, head of the centrist Yashar, every claiming to be most certified to maintain Israelis protected.
Driving Israel’s placing financial resilience has been a booming tech sector largely insulated from its conflicts spanning Gaza, Lebanon, Syria, Iraq, Iran and Yemen.
Regardless of being on a struggle footing since October 2023, Israel has attracted report ranges of funding in tech, the driving force of about one-fifth of financial exercise, amid the frenetic world rollout of synthetic intelligence (AI).
Whole direct international funding hit a report $26.2bn final 12 months, up 78 % from 2024, led by US tech giants Alphabet and Palo Alto Networks’ record-breaking acquisitions of Israeli cybersecurity corporations Wiz and CyberArk, respectively.
Overseas capital has continued to flood into the nation this 12 months, with inflows reaching a quarterly report of $14.1bn within the January-March interval, in response to authorities figures.
Together with prospering from the worldwide AI growth, Israel’s tech scene has benefitted from its shut ties to the native defence sector, which has ramped up orders from a whole bunch of startups supplying every part from radar techniques to communications platforms and anti-drone know-how.
Whereas Israel’s financial system has bounced again partly on account of strong employment and wage progress, its resilience is primarily an “export-driven story that displays robust world know-how demand, significantly in areas the place Israel – and multinational corporations working from Israel – is globally aggressive, reminiscent of cybersecurity and synthetic intelligence,” mentioned Keren Uziyel, a senior analyst for the Center East and Africa on the Economist Intelligence Unit (EIU).
“Curiosity in Israel’s know-how items and providers is driving excessive ranges of FDI and enterprise capital fundraising, and boosting the capital markets, which in flip is having important wealth results and boosting authorities income,” Uziyel advised Al Jazeera.
However Israel’s army campaigns have come at an unlimited price to the general public purse.
In March, the Financial institution of Israel estimated that Israel’s struggle prices up to now had reached roughly 350 billion shekels ($114.6bn) – a determine not together with the then recently-launched Iran struggle.
Navy expenditures are on observe to rise considerably within the coming years as Israeli leaders double down on “nationwide safety”.
Netanyahu, whose right-wing coalition has forged safety as “the inspiration of every part else”, has pushed to boost the annual defence finances to 183 billion shekels ($60bn), equal to roughly 9 % of GDP.
If handed, the finances would elevate army spending by two and a half occasions what it was earlier than October 7.
Outgoing opposition chief Yair Lapid has backed an expanded defence finances, however has clashed with Netanyahu about the best way to fund it.
Financial issues
Although safety has dominated the run-up to the election, opinion polling means that Israelis additionally view the financial system as a key concern.
In an opinion ballot launched by the Israel Democracy Institute final month, 38 % of Jewish Israelis and 46 % of Palestinian residents of Israel – who make up about 20 % of the inhabitants – selected the financial system and the price of dwelling as a very powerful or second-most necessary election challenge.
Israel’s excessive price of dwelling, specifically, has lengthy been a supply of public discontent.
Israel has for years ranked among the many costliest international locations within the Organisation for Financial Co-operation and Growth (OECD), a dynamic economists attribute to the nation’s restricted commerce relations with its neighbours and cumbersome laws.
Although Israel’s total price of inflation has been modest, meals costs have risen at a sooner tempo, growing 8 % between the beginning of 2024 and mid-2026, in response to client advocacy group Foyer 99.
“Individuals are frightened concerning the financial system however not a lot concerning the macroeconomic state of affairs, extra so on their private views, particularly price of dwelling,” Ayal Kimhi, vp of the Shoresh Establishment for Socioeconomic Analysis in Tel Aviv, advised Al Jazeera.
“Nonetheless, the safety state of affairs dominates the general public discourse for apparent causes, so I don’t suppose the financial system will play a serious position within the vote,” Kimhi mentioned.
“Some events don’t even trouble presenting a imaginative and prescient or an agenda,” he added.
“Different events don’t differ a lot about financial points.”
Whereas Israel’s headline financial figures are spectacular, they arrive with caveats connected.
Economists word that whereas Israel’s financial system has grown a lot sooner than its friends, GDP has been boosted partly by the nation’s normally excessive inhabitants progress, which has averaged practically 2 % over the previous decade.
Israel’s progress trajectory has additionally taken a success regardless of the growth, with the Financial institution of Israel estimating an amassed lack of output by the top of 2025 equal to eight.6 % of annual GDP.
Joseph Zeira, a professor of economics on the Hebrew College of Jerusalem, mentioned the nation’s financial efficiency has “not been nice in any respect” contemplating that progress has persistently lagged the pre-conflict development since late 2023.
“Precise dwelling requirements depend upon the realm,” Zeira advised Al Jazeera, including that Israelis are grappling with “greater costs, or somewhat decrease actual wages and incomes”, and deteriorating public providers.
“The one enchancment is a few decline in housing costs on account of an enormous wave of development lately,” he mentioned.
Authorities debt
The long-term well being of Israel’s public funds is one other concern.
Whereas Israel’s debt-to-GDP ratio of about 68 is way beneath that of friends such because the US, the UK, France, and Italy, the hole between authorities income and spending has grown quickly over the previous three years.
In its newest annual report, the Financial institution of Israel mentioned it was “important” for the federal government to “restore orderly budgetary processes” and implement “credible measures” to scale back the general public debt.
Different long-term challenges embrace boosting labour participation amongst ultra-Orthodox Jewish males – whose refusal to do army service has grow to be a serious election challenge – and Arab girls (amongst Palestinian residents of Israel), each of whom are employed at a lot decrease charges than the final inhabitants.
“The price of the army campaigns and mobilisation has severely strained public funds,” Omer Moav, a professor of economics on the College of Warwick and at Reichman College, advised Al Jazeera.
“Deficits and nationwide debt have expanded considerably, making present spending trajectories unsustainable with out fiscal consolidation,” Moav mentioned.
“The following authorities is dealing with an enormous problem.”
No matter who prevails within the election, economists say, Israel’s financial prospects will largely hinge on whether or not battle within the area escalates or subsides.
“We count on progress to succeed in round 4 % in 2026 and to exceed this stage in 2027,” mentioned Uziyel, the EIU analyst.
“Nonetheless, important draw back dangers to progress stay ought to conflicts in Gaza, Iran, or on the Lebanon entrance resume.”
“The outlook relies upon vastly on the safety state of affairs,” mentioned Kimhi of the Shoresh Establishment for Socioeconomic Analysis.
“If we’re capable of put an finish to the struggle and scale back army spending, the longer term could possibly be shiny.”
