JPMorgan predicts limited economic damage to Israel from Iran war

Global banking giant JPMorgan assessed in an analysis released on Friday that the current war with Iran will likely cause only limited damage to the Israeli economy. The bank predicts a short-term slowdown followed by a rapid post-war economic rebound.

According to the analysis, Israel’s budget deficit in 2026 is expected to increase from 3.8% to 4.2% of gross domestic product (GDP), representing an additional deficit of roughly $US2.4 billion (about NIS 9 billion).

Prior to the war, the bank had forecast that the Israeli economy would expand at an annualized rate of 5% during the first quarter of 2026. However, due to the conflict with Iran, JPMorgan now estimates that growth will slow to just 1% in the first quarter, mainly because of restrictions on economic activity stemming from security concerns.

In the longer term, however, JPMorgan believes the overall financial damage to the Israeli economy will be smaller than during the 12-day war, Operation Rising Lion, last June. One key difference is that in the current conflict, Iran has expanded its missile and drone attacks to other countries, including its Gulf Arab neighbors. By contrast, virtually all Iranian missiles fired last year were aimed at Israel.

The bank expects the current war to be limited in duration and intensity. As a result, it has raised its growth forecast for the Israeli economy in the second quarter from 4.5% to 8.5%. Overall, JPMorgan predicts that Israel’s economy will grow by 4.5% in 2026, only 0.3 percentage points lower than its previous forecast of 4.8%. The bank has also raised its growth forecast for 2027 from 3.5% to 3.7%.

JPMorgan predicted that a 30% rise in oil prices would affect gas prices in Israel and other oil-importing economies. However, the JPMorgan report notes that Israel’s strong energy sector offers a buffer against these external energy shocks.

The Israeli economy has proven to be resilient despite over two years of war on multiple fronts with the Islamic Republic of Iran and its regional terrorist proxies Hamas, Hezbollah and the Houthis.

In December 2025, the Organisation for Economic Co-operation and Development (OECD) predicted that the Israeli economy would recover dramatically following the Gaza ceasefire brokered by the United States in October 2025. At the time, the OECD said the Israeli economy could potentially grow by 4.9% in 2026.

“The private sector will lead the economic expansion as military expenditure contracts,” the OECD assessed in its financial report last December.

“Investment will be strong given the backlog accumulated during the war [and] improved household confidence amid more peaceful conditions will support private consumption," the report added.

While the current war could impact this growth rate, Israel’s economy tends to grow faster than most other OECD member states despite the geopolitical uncertainty in the Middle East.

The Tel Aviv Stock Exchange has also shown cautious optimism about continued economic growth, provided that the war with Iran does not become prolonged.