Bank of America forecasts strong GDP growth for Israel in 2026

The Bank of America this weekend predicted a year of strong GDP growth in Israel, noting that the current geopolitical environment of “no war, no peace” is likely to persist, while shipping in the Red Sea remains at continued risk of disruptions.

The Bank forecast GDP growth of 4.2% in 2026, followed by 4% in 2027. Its analysts also expect Israel’s interest rate to fall from 4.25% to 3.25% in 2026 and then hold steady in 2027. The Bank of America maintains an Overweight rating on Israel, citing “attractive pricing and a solid fiscal outlook.”

As for risks, the Bank estimated that tensions between Israel and Iran may grow during the coming year, but that they will not escalate into the kind of full-scale war that we saw in the recent war. They also noted that tensions with Lebanon and Gaza may flare up in the coming year and that economic slowdown and instability in the financial sector remain risk factors for Israeli growth.

The Bank of Israel said that while the geopolitical risks to the economy remain high, “the strong surplus in its current account, alongside growth supported by low interest rates and a healthy private-sector balance sheet, supports its rating,” Jerusalem Post reported.

The Bank of America’s forecast comes shortly after the Organization for Economic Co-operation and Development (OECD) delivered its own prediction that the Israeli economy will recover significantly in the coming year.

The OECD’s current forecast is that Israel’s economy will grow by 3.3 percent in 2025 and potentially up to 4.9 percent in 2026. By comparison, the organization predicts that the average growth rate among the member states will be 3.2 percent in 2025 and 2.9 percent in 2026. 

“The private sector will lead the economic expansion as military expenditure contracts,” the OECD assessed in its report. “Investment will be strong given the backlog accumulated during the war [and] improved household confidence amid more peaceful conditions will support private consumption.”

The OECD, like the Bank of America, also stressed that the current geopolitical tensions with Iran and its proxies in Gaza and Lebanon risk disrupting the predicted growth.

“On the downside, returning warfare would widen the budget deficit and hurt private demand,” the OECD warned, while maintaining that new trade agreements with new Middle East partners could strongly boost predicted growth.

“On the upside, completing the peace agreement beyond the ceasefire could strongly boost growth, particularly in 2027, especially if new trade agreements were signed with large Middle Eastern countries,” it continued, likely referring to the expansion of the Abraham Accords between Israel and the wider Sunni Arab world. 

The positive forecasts were shared by Dr. Ron Tomer, President of Israel’s Manufacturers Association, who expressed optimism about the future of Israel’s economy and industry following two years of war, when he presented the Manufacturers Association’s $1.25 billion plan to boost and strengthen the country’s post-war economy and industry back in October.

The plan aims to double Israeli exports within the next five years and reverse the decline that the Israeli industry has faced since the Hamas-led Oct. 7, 2023, attack.

“We are confident that this postwar plan will secure Israel’s industrial production and exports for years to come,” Tomer said, adding,

“The export sector is Israel’s main growth engine. Over the past two years, exports suffered a sharp decline and a retreat in international cooperation. Israel must take bold measures to compensate for losses, restore confidence in its brand, and secure stable trade partnerships. We believe this plan can double exports within five years and achieve all its goals. The government should adopt it without delay.”