Israeli Businesses Remain Optimistic Despite Economic and Geopolitical Challenges

Despite a turbulent year marked by conflict with Iran, ongoing fighting in northern Israel, high interest rates, currency devaluations, and geopolitical instability, most Israeli business owners continue to express optimism about the future. This is according to the Growth Index 2026 study by Mizrahi Tefahot Bank, based on a survey of 500 small and medium-sized enterprises with annual revenues of at least 5 million shekels and employing six or more workers. Conducted for the third consecutive year by Geocartography Research Institute, the survey was carried out after the ceasefire with Iran and amid ongoing U.S.-Iran negotiations.

The findings reveal that 51% of business owners expect sales growth, and 54% believe their company’s situation will improve in the coming year. However, optimism has declined compared to last year. The most pressing challenge remains recruiting new employees, cited by 37% of respondents, slightly down from 39% last year. This labor shortage is especially acute in medium and large companies with over 10 employees, while smaller businesses focus on expanding their customer base to grow quickly.

The ongoing impact of military reserve duty affects business routines, with 63% of companies experiencing employee mobilization and 43% reporting direct operational disruptions. Most businesses cope by redistributing workloads internally, which risks increasing burnout among remaining staff. Economic pressures have led to a conservative market stance: 67% of companies avoid taking risks or exploring new income sources, and 51% have frozen marketing budgets, while only 10% increased marketing spending. Newer businesses (under five years old) are more likely to boost marketing investment to gain market share.

To offset rising input costs and living expenses, 49% of businesses raised prices, similar to last year’s 51%. Artificial intelligence adoption surged, with 46% of businesses actively using AI tools compared to 29% last year, mainly among larger firms with revenues over 50 million shekels. AI use correlates with a reduced perception of labor shortages, as automation helps mitigate workforce gaps. Nearly all (95%) emphasize AI supports employees rather than replaces them.

Currency depreciation has created a split impact: 54% of import-based businesses report positive effects, while 61% of export-oriented firms suffer from receiving fewer shekels per dollar or euro. Dual import-export businesses also report negative impacts (55%). International business activity has declined sharply, with only 48% maintaining foreign business ties compared to 63% last year, and many expect further reductions due to instability, flight cancellations, supply chain disruptions, and currency devaluation reducing export profitability.