Israel’s economy slumped in the first quarter of the year when the fallout of the war with Iran imposed security-related shutdowns on businesses for more than a month.
Gross domestic product contracted 3.3% in annualized and seasonally adjusted terms, Israel’s statistics bureau said on Sunday, deeper than expected. The median of a Bloomberg survey of seven economists suggested a 2% drop in the first three months. Israel’s finance ministry estimated a 9.5% drop in annual terms.
This was the first set of growth data to reflect the impact of the war ignited in late February, when the US and Israel began strikes on Iran. As part of the retaliation, the Islamic Republic fired hundreds of missiles and a similar number of drones toward Israel, while its Lebanese-based proxy Hezbollah targeted its northern areas.
That led Israeli authorities to restrict gatherings during six weeks of fighting until a ceasefire between the US and Iran was reached in early April, causing disruptions to businesses and economic activity. Over 100,000 men and women were also called up for the army’s reserves, and schools were closed for a month.
The war with Iran had an impact on both private and public consumption, which dropped by 4.7% and 4.8%, respectively, the Central Bureau for Statistics said in a statement. Gross domestic product for the business sector fell 3.1%, while GDP per capita dropped 4.5%.
The economic slump during the quarter was less severe than in the aftermath of Israel’s 12-day war with Iran in June 2025, which resulted in a total shutdown for many businesses. In that quarter, GDP declined 4.3%. Iran’s retaliation toward Israel was more intense then, with no other countries being targeted by its ballistic missile fire. A similar number of projectiles was fired then over the course of two weeks as in the recent six-week war. The Israeli economy went on to grew in the final two quarters of 2025, and accelerated for the year as a whole.
Israel’s central bank and finance ministry expect growth to reach 3.8% this year, having lowered projections from an earlier 5.2% and 4.8%, respectively. To meet these targets, the economy will need to pick up for the rest of the year, something that is to a great extent dependent on upholding ceasefires in Iran, Lebanon and Gaza.
Israel lost 8.6% of annual GDP during the two years through 2025 as a result of the country’s state of near constant conflict, particularly the war in Gaza, which was triggered by Hamas’ October 2023 attacks.
