The International Monetary Fund raised Israel’s 2026 growth forecast by one percentage point last week, to 4.5% — the highest annual growth rate among OECD countries. Prime Minister Benjamin Netanyahu posted the forecast on his X account with the caption, “The Israeli economy is flourishing!” The figure is accurate, but it conceals a completely different reality.
The Israeli economy has demonstrated resilience, a point on which there is agreement across the economic spectrum. The economy has managed to overcome the shocks associated with the prolonged war. However, a forecast based on growth in a single year cannot provide a true picture of the situation.
The Effects of the War
After events that cause economic damage, a recovery always follows. On the eve of the Iron Swords war (in October 2023), the Israeli economy was characterized by a positive annual growth rate of around 2.7% to 3%. However, the war led to many workers being absent from their jobs, some due to reserve duty and others because they were forced to evacuate their homes. Large parts of the economy were shut down during the first months of the war and during rounds of fighting with Iran. The renewed rise in GDP is effectively a “correction” — a sharp jump resulting from the difference between periods of shutdown and the recovery that follows.
Expectations of a sharp increase in annual growth as a result of this correction were relevant to 2025, were subsequently postponed to 2026 and then again to 2027. The IMF’s updated forecast once again places the effects of this correction on growth in 2026 — which may seem like good news. On the other hand, it is not appropriate to compare the projected dramatic growth with growth in other OECD countries, because they are not recovering from years of war and do not need to undergo a correction, as the Israeli economy does.
In addition, Israel has one of the highest population growth rates in the OECD. Historically, Israel’s population has grown by an average of around 1.8% to 1.9% per year, while the average growth rate across OECD countries is around 0.4% to 0.55% per year — despite unprecedented levels of net negative migration from Israel in 2025.
When the IMF’s forecast is considered alongside the economic situation during Netanyahu’s first three years in office, it becomes clear that Israel’s per capita growth rate in 2023–2026 stood at 57% of the OECD average. According to World Bank data, Israel’s economy grew by around 2% in 2023, a year affected by the war that began in October, and by slightly less than 1% in 2024, a year of intense fighting. In practice, these two years saw contractions in GDP per capita: by nearly 1% in 2023 and by slightly more than half a percent the following year.
According to Davar’s calculations, based on data and forecasts from the International Monetary Fund and the OECD, Israel’s cumulative per capita growth over the past four years was 2.7% (an average annual growth rate of 0.67%), compared with 5.4% across the OECD (an average annual growth rate of 1.32%).
The data point to two additional challenges. The share of GDP accounted for by military spending has surged in recent years, meaning this is not growth driven by business activity or social services. National security is, of course, important, and growth in sectors such as the defense industry also brings benefits. However, a 4% increase in the share of military spending as a proportion of GDP points to slower GDP growth in other sectors. Moreover, a growing share of Israeli production is actually being produced outside the country (primarily by Nvidia), with the benefits to the economy being smaller than those generated by domestic production.
Therefore, framing the 2026 figures, the government’s final year in office, as evidence of a “flourishing economy” is inaccurate. Perhaps it would be more appropriate to describe it as a “recovering economy.” During an election period, the public is subjected to the familiar political game: the government highlights its achievements, while the opposition highlights its failures. While, in the context of the war, it would be unfair to call a growth rate slightly above half the OECD rate an economic failure, it is important to understand where we stand.