Israel's economy is experiencing growth despite ongoing conflicts, with significant contributions from the technology sector. However, rising food prices and increasing national debt are raising concerns among voters ahead of the Knesset elections scheduled for October 27, 2026.
Following the Hamas-led attacks on October 7, 2023, Israel's economy initially slowed but has since rebounded, with a reported GDP growth of 2.9 percent in 2025, up from 1 percent in 2024, and 3.2 percent in the first half of 2026, according to government data. The Bank of Israel projects a 4 percent growth for 2026 and 5.5 percent for 2027, surpassing forecasts for other major economies including the United States and the United Kingdom.
The shekel has strengthened against the US dollar, reaching a three-decade high in May, and the TA-125 stock market index has increased by over 110 percent. Unemployment is low at 2.8 percent, and inflation remains modest at 1.5 percent.
The technology sector, which accounts for about 20 percent of Israel's economic activity, has been a key driver of this growth, attracting record levels of foreign investment. In 2025, total direct foreign investment reached $26.2 billion, a 78 percent increase from the previous year, with significant contributions from US tech firms.
Despite these positive indicators, military expenditures have risen sharply due to ongoing conflicts, with costs estimated at approximately 350 billion shekels ($114.6 billion) as of March 2026. Prime Minister Benjamin Netanyahu has proposed increasing the defense budget to 183 billion shekels ($60 billion), which would represent a significant increase from pre-conflict levels.
Public opinion polls indicate that while national security is a primary concern for voters, economic issues, particularly the cost of living, are also significant. A poll by the Israel Democracy Institute showed that 38 percent of Jewish Israelis and 46 percent of Palestinian citizens of Israel consider the economy and cost of living as critical election issues.
Despite overall economic growth, challenges remain, including rising food prices, which have increased by 8 percent from early 2024 to mid-2026. Economists have noted that while Israel's GDP growth is impressive, it is partly due to high population growth rates and that actual living standards vary significantly across different demographics.
The Bank of Israel has emphasized the need for the government to restore budgetary order and implement measures to reduce public debt, which has been exacerbated by military spending. Long-term challenges include increasing labor participation among specific demographic groups, such as ultra-Orthodox Jewish men and Arab women, who have lower employment rates compared to the general population.
Economists suggest that Israel's economic future will largely depend on the regional security situation. While growth is expected to continue, potential conflicts could pose significant risks to this trajectory.