Three years into a multi-front war, Israel's economy is doing far better than many expected, yet the cost of living remains a source of deep public frustration as the country heads to parliamentary elections on October 27.

After slowing sharply following the Hamas-led attacks of October 7, 2023, the economy has rebounded to become one of the fastest-growing among advanced nations. Government figures show GDP grew 2.9 percent in 2025 and 3.2 percent in the first half of this year. The Bank of Israel forecasts 4 percent growth in 2026 and 5.5 percent in 2027, well above projections for the United States, Britain, France, Canada or Japan. The shekel hit a three-decade high against the dollar in May, the main stock index has more than doubled since the war began, unemployment is 2.8 percent and inflation is modest. Technology, which accounts for roughly a fifth of economic activity, is the engine. Foreign direct investment reached a record $26.2bn last year, driven by US firms' acquisitions of Israeli cybersecurity companies Wiz and CyberArk, and the defence sector has fed orders to hundreds of startups.

Economists, however, urge caution. Benjamin Bental of the Taub Center in Jerusalem calls the performance a "small miracle" compared with Europe, but notes that a large share of growth traces to a single company: US chipmaker Nvidia, whose networking chips are designed in Israel and so partly count toward Israeli output. Excluding it, he estimates, 4 percent growth would fall to about 2 percent, and with the population growing roughly 1.5 to 2 percent a year, little would be left per person. Joseph Zeira of the Hebrew University argues the economy has effectively been in recession since late 2023, with private-sector output below its long-term trend and investment still not fully recovered. The Bank of Israel estimates accumulated output losses through 2025 at 8.6 percent of annual GDP.

The war's fiscal toll is heavy. The central bank put war costs at about 350 billion shekels ($114.6bn) by March, before the Iran war, and debt has climbed from around 60 percent of GDP to nearly 70 percent. Rating agencies have downgraded Israel, and Prime Minister Benjamin Netanyahu wants a defence budget of 183 billion shekels, about 9 percent of GDP. The Bank of Israel has urged the government to restore orderly budget processes and credibly reduce debt.

For voters, the sharpest concern is prices. Israel has long ranked among the most expensive OECD countries, which economists link to limited trade with neighbours and burdensome regulation. Food prices rose 8 percent between early 2024 and mid-2026, according to the consumer group Lobby 99. An Israel Democracy Institute poll found 38 percent of Jewish Israelis and 46 percent of Palestinian citizens of Israel ranked the economy and living costs among their top two issues.

Yet the campaign is dominated by security, with Netanyahu and former general Gadi Eisenkot each presenting himself as best placed to protect Israelis. Analyst Ayal Kimhi doubts the economy will play a major role in the vote. That leaves open the question of how the strong headline figures will translate into everyday living standards.