Bank of Israel cuts growth forecast to 4 percent
Israel's Central Bank downgraded its economic growth forecast for 2026 to 4% from 5.2% in January, citing ongoing military repercussions, production restrictions, and geopolitical uncertainties. The gross domestic product contracted by 3.8% in the first quarter, but indicators showed a partial recovery in the second quarter. The bank expects growth to reach 5.5% in 2027 as supply constraints ease and more workers re-enter the labor market. It also raised its budget deficit forecast to 4.9% of GDP for 2026, warning that an additional 25 billion shekels in security spending could push the deficit to 5.5% and cause inflation to rise by about 0.3 percentage points. Inflation is expected to stabilize at 1.8% during 2026 and 2027, with interest rates decreasing to 3% by the end of the period. In the housing market, apartment prices declined by 1.3% annually, while rents increased by 4%. Unemployment rates remained low, and wages continued to rise despite restrictions on certain sectors and the repercussions of reserve soldier call-ups.
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