The Bank of Israel forecasts that Israel’s economy, excluding production abroad, will grow by 3.4% in 2026 and 5.1% in 2027, according to projections released Wednesday. The central bank said the adjusted measure better reflects domestic economic activity.
Including production abroad, total gross domestic product is projected to grow by 5.6% this year and 7.5% next year. The bank said overseas production by multinational companies registered in Israel does not necessarily generate comparable increases in Israeli employment or household income.
“This component contributes in part to government tax revenues, but it does not utilize domestic capital or labor, and most of the income it generates does not accrue to Israeli households,” Bank of Israel Governor Amir Yaron said on Wednesday. “As a result, its rapid growth may create a distorted picture of the pace of real domestic economic activity.”
The forecast assumes fighting will remain at its current low intensity, easing constraints on the economy. Even so, the bank expects output excluding production abroad to remain below its prewar trend through the end of 2027, partly because of a slow recovery in workforce participation.
“At the same time, the Israeli economy remains resilient and robust,” Yaron said. “Nevertheless, uncertainty remains elevated in view of geopolitical developments.”
The bank expects the broad unemployment rate among people ages 25–64 to average 4.6% this year before falling to 3% in 2027.
Inflation is forecast at 1.5% in 2026 and 2.1% in 2027, measured by changes in average fourth-quarter consumer prices from a year earlier.
