The Israeli economy plunged after the war against Iran, but a rebound is hoped for.

Israel's economy experienced a marked slowdown in the first quarter of 2026, weakened by the consequences of the war against Iran, although economists now anticipate a gradual recovery in growth.

According to data released Sunday by Israel's Central Bureau of Statistics, gross domestic product contracted at an annualized rate of 3,3% during the first three months of the year. This decline, however, remains slightly less severe than the forecasts of economists polled by Reuters, who predicted a drop of 4%.

The Israeli economy had nevertheless grown by 2,9% in 2025 and several analysts were hoping for an acceleration of growth in 2026 after the ceasefire concluded in October, which had ended the main fighting of the Gaza war after two years of conflict.

But the situation deteriorated sharply after the strikes carried out on February 28 by the United States and Israel against Iran. These operations led to weeks of Iranian ballistic missile launches targeting Israel, severely disrupting economic activity.

Authorities have had to close schools and impose several security restrictions, while consumption and business activity have slowed in many parts of the country. The conflict has also weighed on investor confidence and certain strategic sectors.

Despite this contraction, several economists believe the Israeli economy could quickly regain positive momentum if hostilities do not resume. Ofer Klein indicated that the first months of the year showed strong activity before the military escalation and that the easing of restrictions since April was already facilitating a gradual return to growth.

The economist raised his growth forecast for 2026 to 3,5%, from 3,2% previously, a sign that markets remain relatively confident in Israel's ability to absorb the economic shock caused by recent regional clashes.