The OECD expects Israel’s war-hit economy to grow 3.3% in 2026 and accelerate to 5.6% in 2027, but warns that conflict risks and a swelling deficit could undermine the recovery.
Activity is rebounding after the March–April fighting with Iran and Hezbollah, with growth in the Jewish state projected to be roughly double the global rate next year, the Paris-based Organisation for Economic Co-operation and Development said in a report on Wednesday.
Before “Operation Roaring Lion,” output was buoyed by private-sector momentum, including an 11% annualized jump in industrial production over the three months through January and a 9.2% rise in credit card purchases in February, while unemployment fell to 2.6%.
The OECD said reconstruction and a restart of the construction sector from mid-March, along with pent-up housing demand, will support the recovery, with private consumption forecast to surge 6.8% in 2027 even as service exports recover more slowly.
The group cautioned that renewed high-intensity fighting or a sharp correction in global artificial-intelligence-related markets could weigh on growth, while deeper regional integration and new trade deals could boost the outlook.
On the fiscal side, it projects the budget deficit will widen to 5.3% of gross domestic product in 2026 before narrowing to 4.2% in 2027, pushing the debt ratio up to 71% next year from about 60% in 2022, even with planned VAT and income-tax hikes contained in the 2025 state budget.
Annual inflation stood at 1.9% in April, and the OECD expects price growth to stay contained at 2.3% in 2026 and 2.1% in 2027, helped by domestic natural gas output and resilient financial markets that have seen record stock prices and a stronger shekel, giving the Bank of Israel room to cut its benchmark interest rate toward 3.5%, from the current 3.75%, over the coming year.
