The OECD expects Israel’s war-hit economy to grow 3.3 per cent in 2026 and accelerate to 5.6 per cent in 2027, but warns that conflict risks and a swelling deficit could undermine the recovery.
Activity is rebounding after war broke out with with Iran and Hezbollah, with growth in the Jewish state projected to be roughly double the global rate next year, the Paris-based organisation said in a report on Wednesday.
This would see the Israeli economy grow at more than three times the rate of the UK’s, which is forecast to see just a GDP increase of just 0.9 per cent this year. This gap would then widen significantly in 2027, with Israel growing at around five times the rate of the UK’s forecast 1.1 per cent growth.
Before Operation Roaring Lion, output in the Jewish state was buoyed by private-sector momentum, including an 11 per cent annualised jump in industrial production over the three months through January and a 9.2 per cent rise in credit card purchases in February, while unemployment fell to 2.6 per cent.
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 per cent 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 per cent of GDP in 2026 before narrowing to 4.2 per cent in 2027, pushing the debt ratio up to 71 per cent next year from about 60 per cent in 2022, even with planned VAT and income-tax hikes contained in the 2025 state budget.
Annual inflation stood at 1.9 per cent in April, and the OECD expects price growth to stay contained at 2.3 per cent in 2026 and 2.1 per cent 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 per cent, from the current 3.75 per cent, over the coming year.
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