IMF cuts Israel’s economic growth estimate to 3.5 percent in 2026

TEL AVIV: The ‌International Monetary Fund lowered its estimate for Israel’s economic growth in 2026 to 3.5 percent from a prior 4.8 percent, it said on Wednesday citing ​regional tensions._x000D_
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In a report, the IMF also expects inflation to rise temporarily due to higher energy prices and supply constraints despite shekel appreciation to a more than three-decade peak against the dollar._x000D_
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“The elevated regional tensions are casting a shadow on Israel’s economy,” it said, referring to conflicts with Iran, Hezbollah and Hamas._x000D_
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The IMF noted that the economy has shown ‌resilience despite repeated ‌shocks, but that elevated regional geopolitical uncertainty ​and ‌long-standing ⁠structural ​impediments are expected ⁠to weigh on the outlook._x000D_
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“Furthermore, renewed intensification of regional tensions remains a key downside risk,” it said._x000D_
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Israel, the IMF said, needs to implement “prudent” policies to safeguard macroeconomic stability and advance structural reforms to boost growth potential._x000D_
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After a 2.9 percent growth rate in 2025, the war with Iran in March and April ⁠led the Bank of Israel to trim ‌its 2026 growth forecast to 3.8 percent, ‌while the Finance Ministry sees growth ​of up to 4 percent this ‌year._x000D_
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Israel’s economy shrank an annualized 3.8 percent in the first quarter._x000D_
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The ‌IMF projects Israel’s economy will grow 4.4 percent in 2027, with an inflation rate holding steady near 2 percent in 2026 and 2027._x000D_
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Forecasts, it noted, were based on data up until June 10._x000D_
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The ‌IMF recommended Israel’s government rebuild fiscal buffers for example by raising revenue, along with fiscal consolidation, ⁠due to ⁠higher defense spending to finance the military conflicts._x000D_
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The IMF also seeks moderately tight monetary policy since higher energy prices look to push inflation higher._x000D_
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In recent weeks, a ceasefire between the United States and Iran has led to a drop in oil prices._x000D_
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“The Bank of Israel should continue to closely monitor war-related effects on labor supply, the pass-through of higher energy prices and exchange rate movements, and the impact of the latest rate cut on financial conditions and domestic ​demand,” it said._x000D_
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Policymakers need to “stand ​ready to adjust course” if incoming data or the heightened risk environment lead to renewed price pressures.