Israel GDP

Economy slips into contraction in the first quarter of 2026

GDP reading: Israel's GDP declined 3.3% in seasonally adjusted quarter-on-quarter annualized (SAAR) terms in Q1, following a 2.9% expansion in the previous quarter. The decline was driven by the economic disruption caused by conflict with Iran. The conflict led to the increased mobilization of reserve soldiers, depressed tourism and economic sentiment, and caused schools and some businesses to close, all of which hit the economy.

Broad-based downturn: Compared with the prior period's data, readings in Q1 worsened for private consumption (-4.7% on a seasonally adjusted quarter-on-quarter annualized (SAAR) basis vs -4.6% in Q4), government consumption (-4.8% vs +0.5% in Q4) and exports of goods and services (-3.7% vs +28.9% in Q4). In contrast, readings strengthened for fixed investment (+12.6% vs -4.3% in Q4) and imports of goods and services (+19.8% vs +1.1% in Q4). On a year-on-year basis, GDP expanded 2.0% in Q1, following a 3.3% expansion in the prior quarter.

Panelist insight: On the reading, Goldman Sachs analysts said: “The driver of the decline was likely almost entirely the ongoing war against Iran that started on February 28, which has caused considerable disruption to economic activity. That said, we find it notable that the economic contraction was smaller than the contraction after the 12-day war in June 2025 (-4.3% annl contraction in Q2-2025) – we had assumed a larger contraction given the longer duration of the ongoing conflict. Given the difficulty in quantifying the economic impact of the war, we expect the probability of larger revisions to the print to be high, since interpolation efforts applied in early GDP prints may be more challenging than usual.”

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