Robust Growth Despite Political Tensions
Israel’s economy demonstrates resilience as it sustains growth through technological investments and an influx of foreign capital, even amid ongoing regional conflicts. While the latest economic indicators suggest expansion, citizens grapple with escalating living costs and soaring military expenditures, creating a complex economic landscape that influences voting decisions ahead of the upcoming elections scheduled on October 27.
Economic Indicators and Market Performance
The country’s stock market has surged over 110% in the past three years, reflecting investor confidence driven by technological innovation and increased foreign investments. Recent projections indicate the economy will grow approximately 1% in 2024, then accelerate towards 3% in 2025, with a further 3.2% estimated in the first half of 2026. The Central Bank expects these figures to rise even more, reaching 4% in 2026 and 5.5% in 2027. Meanwhile, the shekel has appreciated sharply in recent months, bolstered by market favorable conditions and investor optimism.
Technology Sector Drives Economic Expansion
Technology remains a pillar of Israel’s economic growth. The sector accounts for around 20% of economic activity and draws significant foreign direct investment, especially in AI and cybersecurity. In 2025, foreign investments spiked by 78%, with major acquisitions such as Alphabet’s purchase of cybersecurity firms Wiz and CyberArk exemplifying this trend. The first quarter of 2026 alone saw foreign direct investments reach $14.1 billion, setting a new record.
Experts note that the global demand for technology services fuels these trends, bolstering exports and public revenue while strengthening Israel’s innovation ecosystem. This influx of capital not only promotes domestic growth but also enhances the country’s global technological stature.
Cost of War and Budgetary Strains
Despite positive indicators, rising military expenses strain public finances. The ongoing conflict has already cost approximately $115 billion, excluding recent escalations with Iran. Prime Minister Benjamin Netanyahu aims to increase annual defense budgets to nearly $60 billion, which would more than double military spending compared to pre-conflict levels. These expenditures raise concerns about fiscal sustainability and could divert funds from social and infrastructure programs.
Living Costs and Political Implications
Increased military spending coincides with record-high living costs, with food prices jumping nearly 8% since early 2024. Surveys reveal that over 45% of both Jewish and Arab Israelis deem economic issues and inflation as top electoral elections. The high cost of living, coupled with security concerns, influences voter preferences, often overshadowing macroeconomic growth data in political campaigns.
Economists warn that superficial growth figures may mask underlying distress, as citizens face real income stagnation and rising inflation. High public debt—around 68% of GDP—coupled with increased defense spending, complicates fiscal management and long-term economic stability.
