Israeli Economy Surges 15.4% in Q2 Despite Security Challenges

Israel's economy grew by an annualized rate of 15.4% in the second quarter of 2026, significantly surpassing market expectations of around 10%. This rebound followed a 2.2% contraction in the first quarter, which was impacted by Operation "Roaring Lion" against Iran. On a quarterly basis, growth was 3.6%, driven by a 16.6% increase in business output and a 19.5% rise in government consumption. Private consumption also surged by 14.7% compared to the previous quarter.

Exports of goods and services, excluding startups and diamonds, jumped 25.2%, while imports (excluding defense-related goods) increased by 22.7%. The Central Bureau of Statistics noted that the sharp GDP rise reflects strong growth in private consumption, public consumption, and exports, following significant declines in the first quarter due to the conflict. Compared to previous conflicts, the economic impact of Operation "Roaring Lion" was less severe, and the subsequent recovery stronger.

However, the bureau cautioned that a more balanced view comes from comparing the first half of 2026 to the second half of 2025, which shows more moderate growth: GDP up 3.2%, business output up 4.7%, public consumption up 0.5%, and private consumption down 0.4%. The main driver in this comparison was a 14.8% rise in exports and a 22.1% increase in imports, excluding certain sectors.

The Israeli shekel strengthened significantly against the US dollar in Q2, prompting importers to increase dollar purchases to $12.2 billion, according to Bank of Israel data. Meitav Investment's chief economist Alex Zvezhinsky explained that importers benefited from lower dollar rates, boosting activity and enabling more competitive pricing, while exporters faced a less favorable period.

Tax revenues increased, and the budget deficit in July narrowed to 3.3%. The data highlights the economy's resilience amid geopolitical tensions and sets the stage for potential trade opportunities in the evolving Middle East landscape.