The International Monetary Fund has completed its Article IV consultation for Israel, saying elevated regional tensions are weighing on the economy and worsening the outlook. The IMF revised its 2026 growth forecast down to 3.5 percent from 4.8 percent before the war in the Middle East, citing a sharp first-quarter contraction followed by only a modest rebound. It expects inflation to rise temporarily in the near term because of higher energy prices and supply constraints, and said risks remain skewed to weaker growth and higher inflation if regional conflict deepens or lasts longer. The Executive Board called for prudent macroeconomic policies and structural reforms. On fiscal policy, it backed gradual and credible consolidation to rebuild buffers and stabilize public debt, with adjustment relying mainly on revenue measures and spending-efficiency gains given high defense spending and already low civil spending, alongside a broader tax system review. On monetary and financial policy, it said a moderately tight, data-dependent stance remains appropriate, while systemic financial risks appear contained and banks remain well capitalized, liquid and profitable. Even so, it urged continued vigilance on banks' real estate exposures, stronger stress testing, extension of borrower-based measures to nonbank financial institutions, careful Basel III implementation, further improvements to crisis management and continued strengthening of the anti-money laundering and countering the financing of terrorism framework. The IMF also highlighted the need to raise labor-force participation and skills, improve product markets and infrastructure, and support labor mobility and reskilling to sustain growth, including in high-tech and AI.
International Monetary Fund2026-07-01
International Monetary Fund completes Israel Article IV consultation with 2026 growth forecast cut to 3.5 percent
The International Monetary Fund completed its Article IV consultation for Israel and cut its 2026 growth forecast to 3.5 percent, warning that regional tensions are weighing on activity and could push inflation higher in the near term. The IMF urged gradual fiscal consolidation led by revenue measures and spending efficiency, a moderately tight monetary stance, and continued vigilance over banks' real estate exposures. It also called for structural reforms to raise labor participation, skills and productivity.