Israel is heading into its October 27 parliamentary election with strong economic growth and record foreign investment, despite three years of regional conflict that have placed immense pressure on state finances.
Official data shows gross domestic product grew by 2.9 percent in 2025 and 3.2 percent in the first half of this year. The Bank of Israel projects expansion will reach 4 percent for 2026 and 5.5 percent in 2027, outpacing major economies including the United States, Japan and France. Unemployment currently sits at 2.8 percent while annual inflation is measured at 1.5 percent.
The resilience has been anchored by the technology sector, which accounts for roughly one-fifth of economic output. Foreign direct investment reached a record $26.2 billion last year, supported by high-profile corporate acquisitions by Alphabet and Palo Alto Networks, before adding an unprecedented quarterly inflow of $14.1 billion in early 2026.
However, the multi-front conflicts spanning Gaza, Lebanon, Syria, Iraq, Iran and Yemen have imposed massive budgetary costs. The central bank calculated military expenses had reached 350 billion shekels ($114.6 billion) by March. Prime Minister Benjamin Netanyahu is seeking to elevate the annual defence budget to 183 billion shekels ($60 billion), or approximately 9 percent of national gross domestic product.
While security dominates campaigning between Netanyahu and centrist Yashar leader Gadi Eisenkot, domestic living costs remain a persistent issue. Consumer advocacy group Lobby 99 reported an 8 percent rise in food prices between early 2024 and mid-2026. An Israel Democracy Institute survey showed that 38 percent of Jewish Israelis and 46 percent of Palestinian citizens of Israel ranked the economy and living expenses as their first or second election priority.
Joseph Zeira, an economics professor at the Hebrew University of Jerusalem, noted that broader living standards have suffered, with citizens facing "higher prices, or rather lower real wages and incomes" alongside deteriorating public services.
