TEL AVIV — Israel's economy has demonstrated unexpected resilience during nearly three years of war and regional instability, according to economists at Tel Aviv University. This strength in headline data, however, masks growing structural challenges that could affect the country's long-term economic stability.
Tomer Fadlon, a lecturer at Tel Aviv University and the Institute for National Security Studies (INSS), said the economy performed better than anticipated under wartime conditions. Fadlon said the performance, while strong, still falls short of pre-war growth trajectories and forecasts.
Increased government spending has contributed to this resilience. Military expenditures have risen significantly since the conflict began. Compensation for reservists and other wartime fiscal measures have also helped sustain domestic demand, supporting economic activity during prolonged uncertainty.
Israel's high-tech sector remains a dominant force, acting as a central engine of growth. The industry now accounts for about 57 percent of the nation's exports, maintaining strong global demand even during the conflict.
Itai Ater, a professor at Tel Aviv University, said the tech sector plays a key role in maintaining stability. Ater said the industry is a key pillar, insulating the broader economy from sharper decline.
Beneath this apparent stability, macroeconomic indicators signal increasing strain. Israel's credit rating has declined, and its national debt has increased. Gross Domestic Product per capita has also stagnated, raising concerns about long-term sustainability, Ater said.
Economists highlight a disconnect between macroeconomic data and the daily lives of many Israelis. While GDP figures may appear stable, high living costs significantly reduce the purchasing power and financial well-being of citizens.
The Jewish Chronicle reported in February 2026 that after 28 months of conflict, Israel's economy emerged strengthened, defying predictions for its longest and most expensive war.
However, other analyses point to the burden on the middle class, with tension rising between this group and sectors less integrated into the labor force or military. The 2026 budget faced opposition over coalition funds for religious institutions, and reserve soldiers reportedly saw their businesses collapse.
The construction sector faced disruptions due to fewer Palestinian workers entering Israel. Tourist flows also ceased. Hezbollah rocket attacks hampered economic activity in the border region with Lebanon, adding to the high cost of military operations.
Concerns about brain drain, governance gaps and the impact of prolonged conflict could determine whether the economy stabilizes or weakens in the years ahead, according to Tel Aviv University economists. These factors represent deeper structural challenges beneath the surface of immediate resilience.
