Chief economist cuts growth forecast

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The morning after the Knesset passed the 2026 state budget, Ministry of Finance chief economist Shmuel Abramzon has released downwardly revised growth forecasts because of the continuing fighting in Iran and Lebanon.

When operation Roaring Lion began, the chief economist’s initial estimate was of a moderate blow to growth, and the forecast for 2026 was cut from 5.2% to 4.8%.

Now, however, Abramzon states in a press release: "This estimate was prepared in the first days of the operation and was based on a scenario of a short period of fighting in Iran and Lebanon. Since that scenario has not materialized and the fighting has become prolonged, the Chief Economist’s Division has revised the growth forecast under a number of possible scenarios for the continuation of the war."

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According to those scenarios, if the war in Iran ends in mid-April and the war in Lebanon ends at the end of April, growth in GDP will fall to 3.8%; if the war in Iran ends in mid-April but the war in Lebanon continues until the end of the second quarter, growth will fall to 3.5%; and in the final scenario, if the war in Iran ends at the end of April and the war in Lebanon ends at the end of the second quarter, growth will be 3.3%.

Accordingly, the chief economist has also revised the growth forecast for 2027 to 5.3-6.1%.

The revised forecast from the Ministry of Finance comes hours before the Bank of Israel is due to publish its own forecast, and hours after the Knesset passed a budget based on an assumption of 4.8% economic growth and a fiscal deficit of 4.9% of GDP. If GDP is lower, it follows that the deficit will be higher as a proportion of it, and this figure too will presumably need to be revised. It will be interesting to see whether there are gaps between the Ministry of Finance and the Bank of Israel Research Department on the expected deficit. The latter is due to release its forecasts this evening, at the same time as the central bank announces its interest rate decision.

Published by Globes, Israel business news - en.globes.co.il - on March 30, 2026.