IMF predicts Israel’s economy will grow at slower rate due to defense spending, regional tensions

Israel’s economy is expected to grow at a slower pace this year, overshadowed by high defense expenditure and elevated regional tensions, the International Monetary Fund (IMF) cautions in a report.

The IMF lowers its 2026 growth forecast for the Israeli economy to 3.5 percent from 4.8% previously, citing “hostilities in the Middle East, defense expenditure [which] is expected to remain high, and labor supply constrained by military mobilization and reduced availability of non-Israeli workers.” The IMF’s forecast is lower than the Bank of Israel’s 3.8% growth projection for 2026.

“Risks to the growth outlook are tilted to the downside with deeper and more prolonged regional conflicts remaining the key concern,” the IMF says. “With medium-term growth challenges looming, key priorities include rebuilding fiscal buffers, raising labor supply and productivity, and ensuring price and financial stability.”