Israel’s economy bounced back from war, but the 15.4% growth figure tells only part of the story
GDP surged in the second quarter after the latest war with Iran, pushing the economy above its pre-war peak faster than after the previous conflict. But over the first half of the year, growth was a more modest 3.2%, while domestic consumption weakened and an increasing share of activity took place abroad.
The Israeli economy emerged from “Operation Roaring Lion,” the second Israel-Iran war, faster and stronger than it did from the “Operation Rising Lion,” the first Israel-Iran war.
According to the Central Bureau of Statistics, GDP rose 3.6% in the second quarter of 2026 compared with the previous quarter, equivalent to 15.4% growth on an annualized basis, after a 0.6% decline in the first quarter. A year earlier, following the operation against Iran, GDP fell 1.1% in the second quarter of 2025 before rising 3.3% in the third quarter.
The 15.4% figure is impressive for several reasons. First, over the weekend, economists at JPMorgan, one of the world’s leading financial institutions, estimated that the increase would be no more than 11%. Second, the number itself needs to be understood correctly. If the economy had maintained the same quarterly growth rate for four consecutive quarters, GDP would have increased by more than 15% in real terms. That is what quarterly growth at an annualized rate means.
But the heart of Israel’s growth story over the past year lies in the comparison. What matters is not simply how much the economy grew, but where it stood before and after each war.
This time, the decline was roughly half as deep and the recovery was sharper. After the first Iran war, it took two quarters for GDP to return to a level 2.2% above its pre-war peak. After the second war, one quarter was enough to push GDP 3.05% above the previous peak.
An economy that entered its second war in a year therefore recovered from the latest shock more quickly.
But recovery is not the same as growth, and the CBS itself emphasizes this distinction.
Because of the two wars, the bureau recommends comparing the first half of 2026 with the second half of 2025. On that basis, GDP grew 3.2% on an annualized basis, not 15.4%.
That is a better measure of how much the economy actually expanded over the past six months. It is a respectable rate, but hardly a breakout.
And yet, the data is positive.
The economy was at war during part of the first half of the year, while there was no war during the second half of 2025. Quarterly GDP per capita increased by 3% and crossed NIS 44,000 ($14,915) at the beginning of the year, measured at 2020 prices and seasonally adjusted. Business GDP, which is one of the most sensitive indicators of non-government economic activity, grew 4.7% faster than total GDP during the first half.
The question, then, is what actually drove the increase, and what did not.
In the second quarter itself, almost every major component of the economy rose sharply.
Exports of goods from industrial sectors, excluding diamonds, jumped 55.2% on an annualized basis. Investment in information and communications technology rose 181.4%. Public consumption increased 19.5%, private consumption rose 14.7% and imports climbed 27%. The total resources available to the economy increased by 26%.
Even within private consumption, however, the differences are striking.
Per-capita spending on durable goods rose 31%, while spending on semi-durable goods increased 21.1%. Current consumption per capita, including food, housing, electricity and personal services, increased by only 4.5%.
Looking at the first half of the year produces a very different picture.
Investment in fixed assets rose 10.6%, exports increased 14.8% and imports climbed 22.1%. Public consumption barely moved, rising 0.5%. Private consumption declined slightly, while total final consumption expenditure, private and public combined, fell 1.4%.
Imports, meanwhile, surged ahead of exports. During the first half, imports increased 22.1%, compared with 14.8% growth in exports. In the second quarter, imports of civilian goods jumped by about 36%.
One component of imports moved in the opposite direction: imports of tourism services, which mainly reflect Israelis traveling abroad, fell 33% on an annualized basis during the quarter.
The surge in imports, therefore, was not the result of Israelis suddenly traveling more overseas.
The breakdown of private consumption is perhaps the sharpest finding in the data tables.
Per-capita private consumption excluding durable goods, food, housing, electricity and personal services, fell 4.1% on an annualized basis during the first half of 2026. At the same time, per-capita spending on durable goods increased 12.5%.
Israeli households were buying cars, refrigerators and other durable goods while cutting back on current consumption.
That does not necessarily indicate rising incomes. Instead, it may reflect purchases that were postponed during the war and made after it ended, while households continued to restrain their day-to-day spending.
The most intriguing finding is hidden in a new section that appears only in the CBS data tables: GDP excluding adjustments for production abroad.
This measure subtracts what the CBS calls “net exports”, goods produced abroad through subcontractors or affiliated companies and sold abroad without crossing Israel’s borders.
The code name could almost be “Nvidia.”
In the second quarter, the difference is relatively small. GDP grew 15.4% on an annualized basis, compared with 14.4% when net exports are excluded.
But when comparing the first half of 2026 with the second half of 2025, the difference becomes much more significant: 3.2% growth compared with just 1%.
In other words, once the contribution of these international operations is removed, the economy’s growth rate falls sharply.
One plausible explanation is that this activity does not take place in Israel and therefore does not stop when Israel comes under attack.
But the figures may also point to a deeper structural change in the Israeli economy, with an increasingly significant share of economic activity moving beyond the country’s borders.
That distinction becomes particularly important during wartime.
In the first quarter of 2026, GDP fell 2.2% on an annualized basis. Excluding this component, the decline was 5.8%. In the second quarter of 2025, another quarter of intense war, the corresponding declines were approximately 4.3% and 9.2%.
The implication is significant: reported GDP may be becoming more stable than the domestic economy it is supposed to measure.
And as this component grows, the gap could become increasingly important.
The difference between 3.2% and 1% is not merely a technical statistical issue. Both figures are based on the same six-month period and therefore reflect the same war-related disruption. The 2.2-percentage-point gap between them is consequently more revealing than either figure on its own.
Since the second quarter of 2024, the share of net exports in GDP has increased from about 2% to roughly 5% in the second quarter of 2026.
The second-quarter picture is therefore both accurate and incomplete.
The recovery is real, faster than the previous one, and suggests that the Israeli economy has become better at entering and exiting periods of war.
But it is still an event rather than a trend, a sharp rebound from a low point in a single quarter, at a time when the contribution of economic activity taking place outside Israel continues to grow.
The real test will come in the third quarter, the first in a year in which the economy is neither fighting a war nor recovering directly from one.
If current private consumption does not recover, it may become clear that much of what happened in the second quarter was simply the closing of gaps created by the war rather than the beginning of a new phase of growth.
That distinction will ultimately matter more than the 15.4% headline.
