Full Breakdown
Israel’s Economy Grows Amid War, Yet Cost of Living Fuels Voter Anxiety
By Drooid · · How we work
Economic Resilience During Ongoing Conflict
Government figures show Israel’s gross domestic product (GDP) expanded 2.9 percent in 2025, up from 1 percent in 2024, and 3.2 percent in the first half of 2026. The Bank of Israel projects 4 percent growth for the full year 2026 and 5.5 percent for 2027, outpacing major advanced economies. Unemployment sits at 2.8 percent and inflation remains modest at 1.5 percent. A booming technology sector—responsible for roughly one-fifth of economic activity—has attracted record foreign direct investment of $26.2 billion in 2025, a 78 percent increase from 2024, driven by U.S. firms such as Alphabet and Palo Alto Networks acquiring Israeli cybersecurity companies. Quarterly foreign-capital inflows reached a record $14.1 billion in the January-March 2026 period.
Fiscal Strain and Cost-of-Living Pressures
The Bank of Israel estimated war-related expenditures at approximately 350 billion shekels (about $114.6 billion) as of March 2026, excluding the newly launched Iran conflict. A proposed defence budget of 183 billion shekels—roughly 9 percent of GDP—would raise military spending by two-and-a-half times pre-October 7 levels. Israel’s debt-to-GDP ratio stands near 68 percent, lower than many peers but rising sharply. Consumer-advocacy group Lobby 99 reports food prices climbed 8 percent between early 2024 and mid-2026, contributing to public discontent over the cost of living.
Official Statements & Responses
The Bank of Israel’s latest annual report called it “essential” for the government to “restore orderly budgetary processes” and implement “credible measures” to reduce public debt.
Verbatim Quotes
- “However, the security situation dominates the public discourse for obvious reasons, so I do not think the economy will play a major role in the vote,” — Ayal Kimhi, vice president of the Shoresh Institution for Socioeconomic Research in Tel Aviv
- “Actual living standards depend on the area,” — Joseph Zeira, a professor of economics at the Hebrew University of Jerusalem
- “The outlook depends greatly on the security situation,” — Ayal Kimhi, vice president of the Shoresh Institution for Socioeconomic Research in Tel Aviv
What’s Next
Campaigning for the scheduled October 27 election is dominated by national-security narratives, with Prime Minister Benjamin Netanyahu and centrist challenger Gadi Eisenkot positioning themselves as the most qualified to safeguard Israelis. The Bank of Israel’s report underscores that future growth will hinge on whether regional conflicts intensify or subside, leaving fiscal consolidation and cost-of-living relief as pivotal challenges for the incoming government.