Israel’s economy grew 3.7% in the first half, but the sources of growth are shifting
Revised CBS data show stronger growth across the first half of 2026 compared with the second half of 2025. However, lower export estimates and higher government spending have changed the composition of the expansion.
After the Central Bureau of Statistics (CBS) lowered its estimate of second-quarter growth to 14.9% on an annualized basis in September, it has now revised the figure back up to 15.4%. However, the more significant news in the latest release is that the contraction in economic activity during the first quarter, following operation Roaring Lion, was less severe than previously estimated. The decline is now put at 1.5% on an annualized basis, compared with earlier estimates of 1.7% and 2.2%.
In short, the latest figures offer two positive revisions. The economy grew more in the second quarter than previously thought, and it suffered a smaller contraction in the first quarter than initially estimated.
As a result, growth in the first half of 2026 compared with the second half of 2025 is now estimated at 3.7%, up from 3.5% in the second estimate and 3.2% in the initial estimate. Although the overall growth rate has returned to the level reported in August, the composition of that growth has changed significantly.
In August, for example, exports excluding startups and diamonds were estimated to have surged by 25.2% on an annualized basis. That figure fell to 16.6% in the second estimate before rising to 17.7% in the latest revision. Total exports, including those from startups, were revised down from an initial estimate of 35.2% growth to 26.6%.
How, then, can the overall growth estimate return to its initial level if exports are growing more slowly than previously thought? The answer lies partly in government spending, which was revised in the opposite direction, from 19.5% growth in the initial estimate to 22.4% in the latest figures. Most of this revision reflects defense-related consumption, which is now estimated to have risen by 20.4%, up from the 14.7% reported in August.
Another factor behind the upward revision is an increase in estimates of production abroad. In other words, although the CBS has restored its initial estimate of overall growth, it has not done the same for growth excluding production abroad. On that basis, growth is now estimated at 13.8% on an annualized basis, compared with 14.4% in the initial estimate.
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Looking at the broader picture, the difference between growth including production abroad and growth excluding it in the first half of 2026, compared with the second half of 2025, is now 1.6 percentage points. That is unchanged from the second estimate but wider than the 1 percentage point gap in the initial estimate.
Domestic growth, excluding production abroad, therefore remains relatively weak across all three estimates. It is now estimated at 1.3%, compared with 1.1% in the second estimate and 1.0% in the initial estimate.
Investment in fixed assets also weakened in the revised figures. Its growth rate was lowered from 6.3% in the initial estimate to 4.1% in both the second and latest estimates. Investment in the information and communications technology (ICT) sector remains striking, with an annualized increase of approximately 152%, although that is down from the 181% reported in the initial estimate. Investment in machinery and other equipment declined by 6.5%.
Private consumption expenditure rose by 14.6% on an annualized basis in the second quarter, compared with 15.0% in the previous estimate. Private consumption per capita increased by 13.3%. Spending on durable goods, such as vehicles and electrical appliances, was particularly strong, rising by 29.8% on an annualized per-capita basis.
Business-sector output, a key engine of private-sector growth, increased by 17.7% on an annualized basis, equivalent to 4.2% quarter-on-quarter. The previous estimate had put annualized growth at 15.4%. Manufacturing, mining and quarrying stood out, with output surging by approximately 46% on an annualized basis.
Imports, excluding defense-related imports, ships, aircraft and diamonds, rose by 24.0% on an annualized basis, compared with 24.4% in the previous estimate. Civilian imports of goods surged by 37.3%.
The latest figures are not final. The CBS said some data sources are still missing, with the next estimate scheduled for release on November 16.
