Israel’s economy prospers despite years of war, but prices worry voters

After 3 years of Israel’s multi-front warfare successful the Middle East, it would beryllium nary astonishment if this month’s Knesset elections were taking spot against the backdrop of an system successful dire straits.

Instead, Israel’s system is – by galore measures – flourishing.

After slowing sharply successful the archetypal aftermath of the Hamas-led October 7, 2023 attacks and Israel’s genocidal warfare connected Gaza, Israel has rebounded to go 1 of the fastest-growing precocious economies successful caller years.

Gross home merchandise (GDP) grew 2.9 percent successful 2025, picking up from a 1 percent enlargement successful 2024, and 3.2 percent successful the archetypal fractional of this year, according to authorities figures.

The Bank of Israel has forecast 4 percent maturation for the full of 2026 and 5.5 percent maturation successful 2027 – projections that acold transcend the outlooks for large economies specified arsenic the United States, United Kingdom, France, Canada, and Japan.

Over the past 3 years, the shekel has strengthened against the US dollar, hitting a three-decade precocious successful May, and Israel’s banal marketplace has surged, with the benchmark TA-125 up much than 110 percent.

Meanwhile, unemployment stands astatine 2.8 percent, portion ostentation is humble astatine 1.5 percent.

Against this comparatively rosy economical backdrop, campaigning for the October 27 predetermination has been dominated by nationalist security, with Prime Minister Benjamin Netanyahu, person of the right-wing Likud party, and retired wide Gadi Eisenkot, caput of the centrist Yashar, each claiming to beryllium astir qualified to support Israelis safe.

An predetermination advertisement is seen successful Ramat Gan, Israel connected September 23, 2026 [Jack Guez/AFP]

Driving Israel’s striking economic resilience has been a booming tech assemblage mostly insulated from its conflicts spanning Gaza, Lebanon, Syria, Iraq, Iran and Yemen.

Despite being connected a warfare footing since October 2023, Israel has attracted grounds levels of concern successful tech, the operator of astir one-fifth of economical activity, amid the frenetic planetary rollout of artificial quality (AI).

Total nonstop overseas concern deed a grounds $26.2bn past year, up 78 percent from 2024, led by US tech giants Alphabet and Palo Alto Networks’ record-breaking acquisitions of Israeli cybersecurity firms Wiz and CyberArk, respectively.

Foreign superior has continued to flood into the state this year, with inflows reaching a quarterly grounds of $14.1bn successful the January-March period, according to authorities figures.

Along with prospering from the planetary AI boom, Israel’s tech country has benefitted from its adjacent ties to the section defence sector, which has ramped up orders from hundreds of startups supplying everything from radar systems to communications platforms and anti-drone technology.

While Israel’s system has bounced backmost successful portion owed to robust employment and wage growth, its resilience is chiefly an “export-driven communicative that reflects beardown planetary exertion demand, peculiarly successful areas wherever Israel – and multinational firms operating from Israel – is globally competitive, specified arsenic cybersecurity and artificial intelligence,” said Keren Uziyel, a elder expert for the Middle East and Africa astatine the Economist Intelligence Unit (EIU).

“Interest successful Israel’s exertion goods and services is driving precocious levels of FDI and task superior fundraising, and boosting the superior markets, which successful crook is having important wealthiness effects and boosting authorities revenue,” Uziyel told Al Jazeera.

People locomotion adjacent high-rise buildings successful the high-tech concern country of Tel Aviv, Israel May 15, 2017 [Amir Cohen/Reuters]

But Israel’s subject campaigns person travel astatine an tremendous outgo to the nationalist purse.

In March, the Bank of Israel estimated that Israel’s warfare costs to day had reached astir 350 cardinal shekels ($114.6bn) – a fig not including the past recently-launched Iran war.

Military expenditures are connected way to emergence substantially successful the coming years arsenic Israeli leaders treble down connected “national security”.

Netanyahu, whose right-wing conjugation has formed information arsenic “the instauration of everything else”, has pushed to rise the yearly defence fund to 183 cardinal shekels ($60bn), equivalent to astir 9 percent of GDP.

If passed, the fund would rise subject spending by 2 and a fractional times what it was earlier October 7.

Outgoing absorption person Yair Lapid has backed an expanded defence budget, but has clashed with Netanyahu astir however to money it.

Economic concerns

Though information has dominated the run-up to the election, sentiment polling suggests that Israelis besides presumption the system arsenic a cardinal concern.

In an sentiment canvass released by the Israel Democracy Institute past month, 38 percent of Jewish Israelis and 46 percent of Palestinian citizens of Israel – who marque up astir 20 percent of the colonisation – chose the system and the outgo of surviving arsenic the astir important oregon second-most important predetermination issue.

Israel’s precocious outgo of living, successful particular, has long been a root of nationalist discontent.

Israel has for years ranked among the astir costly countries successful the Organisation for Economic Co-operation and Development (OECD), a dynamic economists property to the country’s constricted commercialized relations with its neighbours and cumbersome regulations.

Though Israel’s wide complaint of ostentation has been modest, nutrient prices person risen astatine a faster pace, expanding 8 percent betwixt the commencement of 2024 and mid-2026, according to user advocacy radical Lobby 99.

“People are disquieted astir the system but not truthful overmuch astir the macroeconomic situation, much truthful connected their idiosyncratic perspectives, particularly outgo of living,” Ayal Kimhi, vice president of the Shoresh Institution for Socioeconomic Research successful Tel Aviv, told Al Jazeera.

“However, the information concern dominates the nationalist sermon for evident reasons, truthful I bash not deliberation the system volition play a large relation successful the vote,” Kimhi said.

“Some parties bash not adjacent fuss presenting a imaginativeness oregon an agenda,” helium added.

“Other parties bash not disagree overmuch astir economical issues.”

An Israeli antheral tends to his store successful Haifa, Israel, connected June 24, 2025 [Florion Goga/Reuters]

While Israel’s header economical figures are impressive, they travel with caveats attached.

Economists enactment that portion Israel’s system has grown overmuch faster than its peers, GDP has been boosted successful portion by the country’s usually precocious colonisation growth, which has averaged astir 2 percent implicit the past decade.

Israel’s maturation trajectory has besides taken a deed contempt the expansion, with the Bank of Israel estimating an accumulated nonaccomplishment of output done the extremity of 2025 equivalent to 8.6 percent of yearly GDP.

Joseph Zeira, a prof of economics astatine the Hebrew University of Jerusalem, said the country’s economical show has “not been large astatine all” considering that maturation has consistently lagged the pre-conflict inclination since precocious 2023.

“Actual surviving standards beryllium connected the area,” Zeira told Al Jazeera, adding that Israelis are grappling with “higher prices, oregon alternatively little existent wages and incomes”, and deteriorating nationalist services.

“The lone betterment is immoderate diminution successful lodging prices owed to a immense question of operation successful caller years,” helium said.

Government debt

The semipermanent wellness of Israel’s nationalist finances is different concern.

While Israel’s debt-to-GDP ratio of astir 68 is acold beneath that of peers specified arsenic the US, the UK, France, and Italy, the spread betwixt authorities gross and spending has grown rapidly implicit the past 3 years.

In its latest yearly report, the Bank of Israel said it was “essential” for the authorities to “restore orderly budgetary processes” and instrumentality “credible measures” to trim the nationalist debt.

Other semipermanent challenges see boosting labour information among ultra-Orthodox Jewish men – whose refusal to bash subject work has go a large predetermination contented – and Arab women (among Palestinian citizens of Israel), some of whom are employed astatine overmuch little rates than the wide population.

“The outgo of the subject campaigns and mobilisation has severely strained nationalist finances,” Omer Moav, a prof of economics astatine the University of Warwick and astatine Reichman University, told Al Jazeera.

“Deficits and nationalist indebtedness person expanded significantly, making existent spending trajectories unsustainable without fiscal consolidation,” Moav said.

“The adjacent authorities is facing a immense challenge.”

Regardless of who prevails successful the election, economists say, Israel’s economic prospects will successful ample part hinge connected whether struggle successful the portion escalates oregon subsides.

“We expect maturation to scope astir 4 percent successful 2026 and to transcend this level successful 2027,” said Uziyel, the EIU analyst.

“However, important downside risks to maturation stay should conflicts successful Gaza, Iran, oregon connected the Lebanon beforehand resume.”

“The outlook depends greatly connected the information situation,” said Kimhi of the Shoresh Institution for Socioeconomic Research.

“If we are capable to enactment an extremity to the warfare and trim subject spending, the aboriginal could beryllium bright.”