Israel's economy is growing at a faster rate than major developed nations, driven primarily by a technology sector insulated from the country's military conflicts, though voters worry about rising food costs and the sustainability of war-related spending.
Israel's gross domestic product expanded 2.9 percent in 2025, up from 1 percent in 2024. The Bank of Israel forecasts 4 percent growth for 2026 and 5.5 percent for 2027, rates that exceed projections for the United States, United Kingdom, France, Canada and Japan. The shekel strengthened against the US dollar to a three-decade high in May. Israel's stock market benchmark, the TA-125 index, has surged more than 110 percent over three years. Unemployment stands at 2.8 percent and inflation is modest at 1.5 percent, according to government figures cited by Al Jazeera.
A booming technology sector drives about one-fifth of economic activity. Israel attracted record foreign direct investment of $26.2 billion last year, up 78 percent from 2024, according to government data. US tech giants Alphabet and Palo Alto Networks led the inflows through acquisitions of Israeli cybersecurity firms Wiz and CyberArk respectively. A record $14.1 billion in foreign capital entered during the first quarter of 2026.
Keren Uziyel, senior analyst for the Middle East and Africa at the Economist Intelligence Unit, told Al Jazeera the growth is "export-driven" and reflects global demand for Israeli technology in cybersecurity and artificial intelligence.
However, Israel's military expenditure poses fiscal strain. The Bank of Israel estimated in March that war costs had reached approximately 350 billion shekels, or $114.6 billion. Prime Minister Benjamin Netanyahu has proposed raising the annual defence budget to 183 billion shekels, roughly 9 percent of GDP, more than double pre-October 2023 spending.
Food prices have risen 8 percent between early 2024 and mid-2026, according to consumer advocacy group Lobby 99, faster than the modest headline inflation rate. Israel has ranked among the most expensive OECD countries for years due to limited trade with neighbours and restrictive regulations.
An Israel Democracy Institute poll released last month found 38 percent of Jewish Israelis and 46 percent of Palestinian citizens of Israel identified the economy and cost of living as the most or second-most important election issue ahead of the October 27 vote. Ayal Kimhi, vice president of the Shoresh Institution for Socioeconomic Research in Tel Aviv, told Al Jazeera that voters worry about personal cost of living rather than macroeconomic conditions, but security dominates public discourse.