Despite the war: Bank of Israel forecasts exceptional growth this year and next

The Bank of Israel updated its growth forecast to 5.6% this year and 7.5% next year, a significant increase from the previous forecast. Governor Amir Yaron explained that part of the increase stems from production abroad by Israeli companies, which does not necessarily reflect the state of the local economy. The forecast assumes low intensity of fighting.

The Bank of Israel published an updated forecast according to which the Israeli economy is expected to grow by 5.6% this year and 7.5% next year, a significant increase compared to the July forecast of 4% and 5.5% respectively. Bank of Israel Governor Prof. Amir Yaron explained that a large part of the increase stems from the contribution of production abroad by Israeli companies, whose activities are included in the GDP calculation. According to him, this activity has grown rapidly in the last two years, contributing to state tax revenues but not necessarily relying on local workers or capital, and most of its profits do not reach households directly. Therefore, the rapid growth may present an overly rosy picture of the state of the local economy. Alongside the regular forecast, the bank also published a forecast excluding production abroad, according to which the economy is expected to grow by 3.4% this year and 5.1% next year. The forecast assumes that the intensity of fighting will remain low and does not take into account economic measures by the next government. The forecast joins that of the International Monetary Fund, according to which Israel is expected to lead OECD countries in growth in 2026.