IMF raises Israel’s 2026 growth forecast but sees weaker expansion in 2027
The Fund lifted its 2026 projection to 4.5% from 3.5%, but expects growth of 4.4% next year, below the Bank of Israel’s 5.5% forecast. Over the two years combined, its outlook remains more cautious.
The International Monetary Fund has raised its growth forecast for Israel in 2026 to 4.5%, up from 3.5% in April, a full percentage-point revision. The figure appears in the IMF’s global economic outlook report published this morning. Its forecast for 2027 remains unchanged at 4.4%.
A comparison with the Bank of Israel’s Research Department forecasts, however, tempers the optimism. In a July report, the Research Department projected growth of 4% in 2026 and 5.5% in 2027. The IMF is more optimistic about the current year, but its forecast for next year is 1.1 percentage points lower than the Bank of Israel’s.
Taken together, the forecasts suggest a shift in the timing of growth rather than a stronger overall outlook. The IMF projects cumulative growth of roughly 9.1% over the two years, compared with approximately 9.7% under the Bank of Israel’s forecasts. In other words, the Fund expects more of Israel’s growth to occur in 2026 and less in 2027.
The upgrade stands out against the broader regional outlook. In the same report, the IMF cuts its 2026 growth forecast for the Middle East and North Africa, citing the prolonged closure of the Strait of Hormuz. The report does not explicitly mention Israel in this context.
The IMF has also lowered its forecast for Israeli inflation in 2026 to 1.8%, from 2.3% in April. This contrasts with the broader trend: inflation forecasts for the global economy and advanced economies have risen by 0.3 to 0.5 percentage points. The revision suggests that the Fund expects inflationary pressures in Israel to be less severe than previously anticipated.
The outlook for unemployment has barely changed, with the rate expected to remain around 3%. The current account surplus, however, is projected to narrow to 1.1% of GDP, down from nearly 2% in the previous forecast.
Oil drives inflation back up
The IMF now assumes an average oil price of $95.70 per barrel in 2026, 16% higher than its April projection. It also expects the Strait of Hormuz to remain closed until March 2027. Oil prices peaked at $126 per barrel in late March.
European natural gas prices are expected to be approximately 36% higher than projected in April, while food prices are forecast to rise by 5% this year. Global inflation is projected to reach 4.7% in 2026 before easing slightly to 4.1% in 2027, remaining elevated.
The probability of global inflation exceeding 5% in 2027 has increased to 35%, up from 30% in April. Core inflation in the United States and the eurozone is not expected to return to 2% until mid-2028.
Money not saved
The IMF warns that fiscal policy remains expansionary and that deficits are historically high in several major economies. Many governments responded to the energy shock with support measures that were neither targeted nor temporary. Meanwhile, energy exporters and countries benefiting from the AI boom have directed windfall profits toward additional spending rather than saving them.
Defense spending is also rising. The Fund’s message is clear: any increase in spending or tax cuts must be accompanied by a source of funding.
The rising cost of government debt
Public debt in advanced economies is projected to increase from 108% of GDP in 2025 to 115% in 2031. In emerging markets, it is expected to rise from 74% to 84%.
The problem is not just the size of the debt but also the cost of servicing it. Government bond yields in advanced economies have reached multi-decade highs, while governments are shortening debt maturities. In a scenario in which the war continues until mid-2027, public debt in advanced economies would rise by more than an additional three percentage points of GDP.
The IMF also warns against political pressure on central banks to finance government deficits or tolerate inflation above target levels, emphasizing the importance of preserving their independence.
Global growth increasingly concentrated
The IMF projects that global growth will slow from 3.5% in 2025 to 3.1% in 2026, before recovering to 3.4% in 2027. Although its 2026 forecast is unchanged from April, the headline figure masks a significant shift in the sources of growth: 32 economies now account for 95% of global growth, compared with 54 in the previous forecast.
Economies integrated into the AI value chain and less exposed to energy shocks are expanding, a category that includes Israel. By contrast, economies that depend heavily on energy imports and are less connected to the technology sector are being left behind.
