OECD forecasts Israeli economy to grow 5.6% in 2027 despite war impact

Israel's economy is expected to rebound strongly after weathering the impact of the wars with Iran and Hezbollah, with the Organization for Economic Co-operation and Development (OECD) forecasting growth of 5.6% in 2027.

In its latest World Economic Outlook, released Wednesday, the OECD projected Israeli economic growth of 3.3% in 2026 before accelerating sharply the following year.

The organization attributed the weaker 2026 growth forecast to the economic effects of the ongoing conflicts with Iran and its terrorist proxy Hezbollah in Lebanon.

The OECD also expects Israel's budget deficit to widen to 5.3% of GDP in 2026 due to rising war costs before narrowing to 4.2% in 2027. The report forecasts that Israel's debt-to-GDP ratio will rise to 71% in 2026 before easing slightly to 70% the following year.

Prior to the Hamas-led Oct. 7, 2023, attack, Israel's debt ratio stood at roughly 60% in 2022, among the lowest in the developed world.

The report noted that before the outbreak of the Iran war in late February, Israel's economy was showing signs of renewed momentum, driven by private-sector activity and expanding industrial production.

Credit card purchases rose 9.2% in February, while unemployment fell from 3.2% in December 2025 to 2.6% in early 2026. Economists generally view rising private consumption as a key indicator of economic recovery and expansion.

However, that momentum was disrupted by the wars with Iran and Hezbollah. Many Israeli workers were called up for reserve duty, while schools and businesses faced temporary closures.

The economic fallout was compounded by Iran's closure of the Strait of Hormuz, which sent shockwaves through global markets and affected the Israeli economy as well.

Last month, global credit rating agency S&P Global Ratings projected 5% growth for Israel's economy during the current fiscal year despite the challenges posed by the war.

The OECD's forecast is closer to that of the Bank of Israel. In late March, the central bank lowered its 2026 growth forecast from 5.2% to 3.8%, citing the economic impact of the war with Iran and its proxy Hezbollah.

“Insofar as the fighting continues, economic activity is being negatively affected mainly by restrictions on the home front due to missile fire and threats, absences from work due to the shutdown of the educational system, and mobilization of the military reserves,” the Bank of Israel said in an official statement.

Bank of Israel Governor Amir Yaron also assessed the impact of the conflict.

“Recent weeks, since the beginning of Operation Roaring Lion, have been marked by considerable geopolitical uncertainty, and the war’s impacts on the economy and on real activity can be seen across all industries,” Yaron explained.

Looking ahead, the OECD expects Israel's construction sector to play a major role in the country's economic recovery.

The report predicts increased rebuilding and repair work stemming from missile damage, while continued population growth is expected to sustain strong demand for housing and infrastructure.

The OECD also forecasts private consumption will increase by 6.8% in 2027.

While the organization's longer-term outlook for Israel remains largely optimistic, it cautioned that the risks to its forecast are “symmetric and significant.”

Renewed high-intensity fighting with Iran and Hezbollah could weigh heavily on economic activity. Conversely, expanded trade ties between Israel and its Middle Eastern neighbors could provide an additional boost to growth.

The recent Iran war has already strengthened ties between Israel and the United Arab Emirates. Israel reportedly deployed a manned Iron Dome aerial defense battery to help bolster the UAE's defenses against Iranian missiles and drones.

Two Israeli trade delegations are reportedly scheduled to visit the UAE next week to discuss expanding commercial relations.

Israel and the UAE established full diplomatic relations in 2020 under the American-brokered Abraham Accords.