The economy recovered faster than expected, but one figure hides the truth
The Israeli economy emerged from "Lion's Roar," the second Iran war, faster and stronger than it emerged from the first. GDP rose in the second quarter of 2026 by 3.6% compared to the previous quarter, or 15.4% in annual terms.
The Israeli economy emerged from "Lion's Roar," the second Iran war, faster and stronger than it emerged from "People as a Lion," the first Iran war. According to CBS data, GDP rose in the second quarter of 2026 by 3.6% compared to the previous quarter, 15.4% in annual terms, after a 0.6% decline in the first quarter. A year earlier, after the operation against Iran, the product fell by 1.1% in the second quarter of 2025 and rose by 3.3% in the third quarter.
The number 15.4% is impressive for several reasons. First, JPM economists estimated that the jump would be no more than 11%. Second, if the economy had maintained the quarter's pace for four quarters, the product would have grown by more than 15% in real terms. The heart of the Israeli economy's growth story in the last year is the comparison. This time the fall was half as shallow, and the recovery was sharper. After "People as a Lion," it took two quarters to return 2.2% above the pre-war peak. After "Lion's Roar," one quarter was enough to exceed the previous peak by 3.05%.
An economy that enters a war for the second time in a year recovered from it better. But recovery is not growth, and the CBS itself emphasizes this. The announcement contains an unusual recommendation: following the two wars, it is recommended to compare the first half of 2026 to the second half of 2025. In this window, the number is 3.2% in annual terms. This is the pace at which the economy actually grew in the last half year, and it is a reasonable pace, not a breakthrough. And yet the data is positive. Quarterly GDP per capita grew by 3% and crossed 44,000 shekels for the first time (2020 prices, seasonally adjusted). Business GDP, which is the most sensitive indicator of non-governmental activity, rose in the half-year by 4.7% faster than the total product.
In the quarter itself, almost everything rose. Exports of goods from industrial sectors, excluding diamonds, jumped 55.2% in annual terms. Investment in information and communication technology sectors rose 181.4%. Public consumption rose 19.5%, private consumption 14.7%, and imports 27%. The total resources available to the economy grew by 26%. However, in half-year versus half-year, the same components look completely different. Investment in fixed assets rose 10.6%, exports 14.8%, and imports 22.1%. But public consumption barely moved (0.5%), private consumption fell slightly, and total final consumption expenditure fell by 1.4%.
The big story is hidden in a new item that appears only in the data tables: GDP excluding adjustments for production abroad. This is the product minus what the CBS calls "net exports" — goods produced abroad using subcontractors and sold abroad without crossing the country's borders. Codename: "Nvidia". In the second quarter, the difference is negligible: growth of 15.4% versus 14.4% when that net export is removed. However, in half-year versus half-year, the difference is 3.2% versus 1.0%. That is, when the contribution of those international companies is deducted, growth drops to only 1%. The real test is the third quarter: the first in a year that has neither war nor recovery from war.
