Israel’s economy rebounds in Q2 after contraction from Iran war

Israel’s economy bounced back in the second quarter of 2026, snapping out of a contraction that followed the country’s military confrontation with Iran earlier this year. The rebound marks a sharp reversal from Q1, when GDP shrank at an annualized rate of 3.3%, a figure that, while ugly, actually came in better than the 4% decline economists had penciled in. The Q1 contraction traced directly to the escalation that began on February 28, 2026, when US and Israeli strikes and Iranian responses threw the region into its most intense direct conflict in decades. Reserve mobilizations pulled workers from their jobs, schools shut down, tourism cratered, and Israeli consumers did what people tend to do when missiles are flying: they stopped spending. Ceasefires cleared the path April brought ceasefires with both Iran and Hezbollah, and with them, a palpable shift in economic momentum. Consumer sentiment improved, businesses resumed operations, and foreign investors who had been watching from the sidelines started re-engaging with Israeli markets. The pattern is becoming familiar. In 2025, Israel posted full-year growth of 2.9% despite a brutal 4.3% annualized GDP contraction in Q2 of that ...