Israeli GDP surges: up 15.4 per cent in the quarter

When, in the early months of 2026, Israel and the United States launched the joint military operations of Operation Roaring Lion, a further acceleration of the war economy suggested anything but a boom: Israeli GDP had contracted by 2.2 per cent in the first quarter of the year. A rebound was certainly expected, but no one had imagined it would be on this scale: in the second quarter, year-on-year GDP growth reached 15.4%, well above even the most optimistic estimates – including the 11% forecast by JPMorgan – in a country marked by deep and recurring geopolitical divisions. The figures, moreover, speak for themselves: exports grew by 32.2 per cent, business output by 16.6 per cent, private consumption by 14.7 per cent and public spending by 19.5 per cent. This is a completely different scenario to what happened following the first conflict with Iran – Operation Rising Lion in 2025 – when GDP had fallen by 1.1 per cent in the second quarter, only to rebound by 3.3 per cent in the following quarter. This time, it took just one quarter to bring GDP back to 3.05 per cent above its pre-war peak, a result driven primarily by a rapidly expanding technology sector: Israel is now the main research and development hub for the global semiconductor giant Nvidia outside the United States. A turnaround of this magnitude confirms how the Israeli economy functions like a compressed spring, ready to spring into action, built up over time to absorb the geopolitical shocks that have always marked its history. Growth is underpinned first and foremost by surprisingly solid and resilient domestic consumption, whilst the outstanding performance on the export front continues to demonstrate the competitiveness of Israeli goods and services on international markets.

These are encouraging figures, certainly, but they tell only part of the story. The Israeli economy remains, in fact, heavily dependent on American support, and the hefty cost of military spending is beginning to take its toll: according to reports from the Minister of Finance Bezalel Yoel Smotrich, the public debt has risen to a record level of 1,400 billion shekels, equivalent to approximately 480 billion dollars. As early as 2024 – well before the start of Operation Roaring Lion – defence spending was estimated to account for around 8 per cent of national GDP. Furthermore, in April this year, it emerged that the Israeli state still owes private defence sector suppliers around 3.5 billion dollars. There is also another, by no means minor, issue: the high-tech sector’s significant contribution is viewed by some analysts as a potential double-edged sword, given that a large proportion of the revenue from the production and sale of chips and servers is, in fact, generated outside Israel’s borders. Whilst these operations continue to generate corporate tax revenue, the actual manufacturing takes place elsewhere, and with it vanish benefits that are far from marginal: Israeli jobs, income tax on employees’ earnings and VAT generated by domestic consumption. Nevertheless, according to a far from insignificant figure released by the Israeli Central Bureau of Statistics, second-quarter growth calculated excluding Nvidia stands at 14.4 per cent: just one percentage point lower than the overall figure of 15.4 per cent reported.