Weekly report, August 17, 2026: Strong macroeconomic data meets political and geopolitical woes

ISRAEL - Report 17 Aug 2026 by Sani Ziv

Key headlines:
* Israel’s macroeconomic fundamentals continued to surprise positively. July inflation declined to 1.5%, while Q2 GDP rebounded by 15.9% annualized, much more strongly than expected.

* The September 1 Bank of Israel decision is becoming a close call. Strong growth, rapid wage increases and a tight labor market argue for keeping rates unchanged, while low inflation, renewed shekel appreciation and positive fiscal data provide room to ease. We continue to expect only one additional 25bp cut this year, to 3.25%.

* The election campaign is heating up ahead of the October 27 election. Monday’s Likud primaries will test the balance of power within the ruling party, while current polls continue to point to a significant risk of post-election deadlock.

* Gaza is increasingly intertwined with the election campaign. Netanyahu has an incentive to delay an Israeli withdrawal until after the election, but the Trump administration may not accept such a delay.

Now read on...

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