Israel Q1 GDP shrinks 3.3% annualised as Iran war weighs

JERUSALEM - Israel's economy contracted at an annualised rate of 3.3% in the first three months of 2026, the Central Bureau of Statistics said on Sunday, as the war against Iran weighed on output.

The decline was not as severe as a 4% drop forecast in a Reuters poll of economists.

The economy grew 2.9% in 2025 and was expected to bounce back in 2026 to more than 5% growth after a ceasefire in October ended major fighting in the two-year Gaza war.

But growth took a hit after the start of a U.S.-Israeli conflict with Iran began on February 28, resulting in weeks of ballistic missile fire from Iran that closed schools while businesses suffered.

The Bank of Israel currently sees the economy growing 3.8% this year, depending on whether a ceasefire forged last month with Iran holds.

In the first quarter, consumer spending fell 4.7%, exports declined 3.7% and government spending shed 4.8%. Investment in fixed assets rose 12.6%.

On a per capita basis, the economy shrank 4.5%.

(Reporting by Steven ScheerEditing by Peter Graff)

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This story was originally published May 17, 2026 at 3:45 AM.