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Israel's economy booms amid multi-front war, but election focus is on security

GDP growth, record foreign investment and a surging tech sector mask voter concerns over rising living costs ahead of October 27 Knesset elections

By LineZotpaper
Published
Read Time3 min
Israel's economy is flourishing by most measures despite nearly three years of war, with GDP growth accelerating, unemployment at 2.8 percent and a booming tech sector attracting record foreign investment. Yet the October 27 election campaign has been dominated by security rather than the economy, as Prime Minister Benjamin Netanyahu and challenger Gadi Eisenkot each argue they are best placed to keep Israelis safe. Voters, however, remain worried about prices, according to the report.

After a sharp slowdown following the Hamas-led attacks of October 7, 2023 and the subsequent war in Gaza, Israel's economy has rebounded strongly. Gross domestic product grew 2.9 percent in 2025, up from 1 percent in 2024, and expanded 3.2 percent in the first half of 2026, according to government figures. The Bank of Israel forecasts 4 percent growth for the full year and 5.5 percent in 2027, far outpacing major economies like the United States, the United Kingdom, France, Canada and Japan.

The shekel strengthened against the US dollar, hitting a three-decade high in May, and the benchmark TA-125 stock index has more than doubled over the past three years. Inflation stands at a modest 1.5 percent.

Driving this resilience is a tech sector that accounts for about one-fifth of economic activity. Total direct foreign investment reached a record $26.2 billion in 2025, up 78 percent from the previous year. Acquisitions of Israeli cybersecurity firms Wiz and CyberArk by US tech giants Alphabet and Palo Alto Networks were among the largest deals. Foreign inflows hit a quarterly record of $14.1 billion in the first three months of 2026.

Israel's tech scene has also benefited from its close ties to the defence sector, which has increased orders from hundreds of startups supplying radar systems, communications platforms and anti-drone technology.

"Interest in Israel's technology goods and services is driving high levels of FDI and venture capital fundraising, and boosting the capital markets, which in turn is having significant wealth effects and boosting government revenue," Keren Uziyel, a senior analyst at the Economist Intelligence Unit, told Al Jazeera. She described the recovery as "an export-driven story that reflects strong global technology demand."

Despite the economic boom, the election campaign has focused on national security, with the right-wing Likud led by Netanyahu and the centrist Yashar led by Eisenkot both positioning themselves as the party most capable of protecting the country. Voters, however, are reportedly concerned about rising prices, an issue that has not taken centre stage in the campaign.

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Analysis

Why This Matters

  • Israel's war economy shows that a country can sustain prolonged conflict while maintaining strong economic growth, a dynamic with implications for regional stability and global defence markets.
  • The disconnect between strong macro indicators and voter anxiety over living costs highlights a potential political risk for incumbents even in a booming economy.
  • The record foreign investment in Israeli tech underscores the global AI boom's geographic concentration and may shape future technology supply chains.

Background

Israel has been engaged in a multi-front war since the Hamas-led attacks of October 7, 2023, which sparked a genocidal war in Gaza and escalated into conflicts with Hezbollah in Lebanon, Syrian militias, Iranian forces, and Houthi rebels in Yemen. Despite the expanded military operations, the economy has proven resilient, driven largely by a tech sector that is a global leader in cybersecurity and artificial intelligence. The upcoming Knesset elections on October 27 are the first since the war began, and both major parties are framing their campaigns around security credentials rather than bread-and-butter economic issues.

Key Perspectives

[Incumbent government (Likud)]: Prime Minister Benjamin Netanyahu's party argues that strong leadership on security underpins economic success, pointing to the booming tech sector and foreign investment as evidence that confidence in Israel remains high. [Opposition (Yashar)]: Retired general Gadi Eisenkot's centrist party also emphasises security, claiming that Netanyahu's management of the war has been flawed and that a different approach is needed to ensure long-term safety and stability. [Economists]: Analysts such as Keren Uziyel highlight that Israel's growth is export-driven, dependent on global demand for AI and cybersecurity products. The wealth effects from the tech boom have boosted government revenue but may not be felt equally by all voters. [Voters]: While the economy is growing, many Israelis are concerned about rising prices. This anxiety has not been a central campaign theme, but it could influence turnout and voting choices, particularly among middle and lower-income households.

What to Watch

  • The outcome of the October 27 election: whether Likud retains power or Yashar gains enough seats to form a coalition.
  • Whether the Bank of Israel's growth forecasts materialise, especially if global AI investment slows or geopolitical tensions escalate further.
  • Inflation and consumer prices: if the modest 1.5 percent inflation rate starts to climb, cost-of-living concerns could become a more prominent political issue post-election.
  • The trajectory of foreign direct investment: continued inflows will depend on both Israel's tech ecosystem and perceptions of security risk.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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