Israel’s economy prospers despite years of war, but prices worry voters

Tech is driving the economy, and investments are flowing in. But food costs are rising and debt is growing, making the economy a concern for many voters. Save Share After three years of Israel’s multi-front war in the Middle East, it would be no surprise if this month’s Knesset elections were taking place against the backdrop of an economy in dire straits. Instead, Israel’s economy is – by many measures – flourishing. After slowing sharply in the initial aftermath of the Hamas-led October 7, 2023 attacks and Israel’s genocidal war on Gaza, Israel has rebounded to become one of the fastest-growing advanced economies in recent years. Gross domestic product (GDP) grew 2.9 percent in 2025, picking up from a 1 percent expansion in 2024, and 3.2 percent in the first half of this year, according to government figures. The Bank of Israel has forecast 4 percent growth for the whole of 2026 and 5.5 percent growth in 2027 – projections that far exceed the outlooks for major economies such as the United States, United Kingdom, France, Canada, and Japan. Over the past three years, the shekel has strengthened against the US dollar, hitting a three-decade high in May, and Israel’s stock market has surged, with the benchmark TA-125 up more than 110 percent. Meanwhile, unemployment stands at 2.8 percent, while inflation is modest at 1.5 percent. Against this relatively rosy economic backdrop, campaigning for the October 27 election has been dominated by national security, with Prime Minister Benjamin Netanyahu, leader of the right-wing Likud party, and retired general Gadi Eisenkot, head of the centrist Yashar, each claiming to be most qualified to keep Israelis safe. Driving Israel’s striking economic resilience has been a booming tech sector largely insulated from its conflicts spanning Gaza, Lebanon, Syria, Iraq, Iran and Yemen. Despite being on a war footing since October 2023, Israel has attracted record levels of investment in tech, the driver of about one-fifth of economic activity, amid the frenetic global rollout of artificial intelligence (AI). Total direct foreign investment hit a record $26.2bn last year, up 78 percent from 2024, led by US tech giants Alphabet and Palo Alto Networks’ record-breaking acquisitions of Israeli cybersecurity firms Wiz and CyberArk, respectively. Foreign capital has continued to flood into the country this year, with inflows reaching a quarterly record of $14.1bn in the January-March period, according to government figures....