Israel’s economy contracted at an annualised rate of 3.3 per cent in the first three months of 2026, the Central Bureau of Statistics has said, as the war against Iran weighed on output, Reuters reports.

The decline was not as severe as a 4pc drop forecast in a Reuters poll of economists. The economy grew 2.9pc in 2025 and was expected to bounce back in 2026 to more than 5pc growth after a ceasefire in October ended major fighting in the two-year Gaza war.

But growth took a hit after the start of a US-Israeli conflict with Iran began on February 28, resulting in weeks of ballistic missile fire from Iran that closed schools while businesses suffered.

The Bank of Israel currently sees the economy growing 3.8pc this year, depending on whether a ceasefire forged last month with Iran holds.

In the first quarter, consumer spending fell 4.7pc, exports declined 3.7pc and government spending shed 4.8pc. Investment in fixed assets rose 12.6pc. On a per capita basis, the economy shrank 4.5pc.