Israeli Economy Defies War Impact with Strong Growth in High-Tech and Exports

Despite three years of ongoing conflict, Israel's economy continues to outperform expectations with robust growth in the high-tech sector, soaring service exports, increased tax revenues, and low unemployment. The high-tech industry, particularly in artificial intelligence, remains vibrant, exemplified by startups like Decart, which innovates in generative video technology and has attracted significant venture capital investments. In the first half of 2026, Israeli high-tech capital raising surged by 50% compared to the previous year, underscoring the sector's resilience.

Exports of high-tech services grew by 14.3% year-on-year to $67.11 billion by May 2026, representing 68% of Israel's total service exports, up from 65.4% in 2023. This growth supports government finances amid war-related expenditures totaling 450 billion shekels. Approximately 35% of income tax revenue derives from high-tech employees, contributing to 25% of all business sector tax income. Investment in ICT sectors rose 23.5% annually in Q2 2026, reflecting confidence in future technological development.

Tax collection across the economy increased by 14.5% in the first seven months of 2026, with direct taxes up 17.7% and indirect taxes like VAT rising 9.8%. This fiscal strength has kept the budget deficit at 3.3% of GDP through July, well below the 4.9% annual target, despite expected government spending increases for elections and defense.

Labor market indicators show significant improvement, with labor force participation reaching 61.9% in June 2026 and unemployment rates dropping to 3% for men and 2.7% for women. Full-time employment rose to 72.8%, and business registrations increased notably, especially in high-tech sectors. Consumer spending is also strong, with credit card expenditures up 9.5% year-on-year in H1 2026, driven by food, beverages, and durable goods.

Goods exports from Israeli ports and airports grew by 14.8% annually from May to July 2026, with high-tech product exports rising 26%. Imports of raw materials and investment goods also increased, signaling ongoing industrial expansion. These economic achievements come despite the challenges posed by the war and social tensions, highlighting the surprising resilience and dynamism of Israel's economy.