On Thursday, the International Monetary Fund (IMF) released a preliminary report evaluating the Israeli economy after a recent visit from a delegation. The findings presented a mixed portrayal of the economy, highlighting both resilience and significant challenges ahead.
According to the Hebrew economic publication Globes, the report notes that the Israeli economy has shown a robust recovery following the ceasefire in Gaza. The IMF predicts a growth rate of 4.8 percent by 2026, building on a projected 2.9 percent growth for 2025. However, the report also cautions that renewed regional tensions could impede this growth trajectory.
The IMF observed that economic activity surged quickly after the ceasefire in October. The report suggests that, assuming there are no resumed hostilities, the expansion will likely be bolstered by a rebound in investment and a temporary uptick in private consumption, despite an anticipated decline in government spending.
Despite these optimistic indicators, the IMF’s assessment reflects a more tempered outlook compared to local forecasts. The organization projects a slowdown in growth to 3.5 percent in subsequent years—well below pre-war estimates of nearly 4 percent, and significantly lower than the Bank of Israel’s forecast of 4.3 percent GDP growth for 2027.
The report details several ongoing challenges that contribute to this cautious projection, including an increase in defense spending expected to continue for years, the mobilization of reserve forces, elevated risk premiums, and a reduction in job opportunities for non-Israeli workers.
Economists from the IMF raised alarms regarding the government’s fiscal policy as well. While they acknowledged the 3.9 percent deficit ceiling proposed for the 2026 budget as a positive step, they emphasized that it is insufficient to achieve a downward trajectory in public debt, which surged from 60 percent of GDP in 2022 to an expected 68.6 percent by the end of 2025. To stabilize the economy, the IMF recommends targeting a deficit of 2.4 percent by 2029.
In contrast, the Israeli Treasury has indicated that a long-term strategy to reduce the debt-to-GDP ratio is in place, which will unfold over a decade. This varied approach highlights the ongoing economic and fiscal debates facing the Israeli government as it balances recovery efforts with strategic financial planning. Given the resilience shown post-ceasefire, there remains hope for continued growth, provided that the challenges identified by the IMF are effectively addressed.