IMF: Israel’s economy expected to strengthen following Gaza truce, but regional conflicts a concern

Israel’s economy is expected to strengthen following the Gaza ceasefire, but a resumption of regional conflicts remain a key concern to the growth outlook, the International Monetary Fund (IMF) says in a report.

“Israel’s economy has demonstrated notable resilience. Following the Gaza ceasefire, economic activity accelerated markedly, and staff expect growth to firm in the near term,” the IMF says in its initial country report on the Israeli economy. “But there are downside risks, including from potential renewed regional tensions.”

“The conflict’s legacy is substantial: defense spending remains elevated, risk premia are higher, and labor supply is constrained by extended military mobilization and reduced availability of non-Israeli workers,” the IMF cautions.

Following the ceasefire agreement, the IMF says it expects the Israeli economy to grow 4.8 percent in 2026 from 2.9% in 2025, helped by pent-up private consumption and a rebound in investment, and a decline in government consumption.

“Over the medium-term, staff project growth at around 3.5%, down from 4% pre-conflict, reflecting the lingering conflict-related effects—including elevated defense spending and mobilization, higher risk premia, and reduced availability of non-Israeli workers,” the IMF says.

The IMF’s initial country report was presented to Finance Minister Bezalel Smotrich and Bank of Israel Governor Amir Yaron. The IMF’s detailed annual country report will be published at a later stage.