According to Sedaye Sama News Agency

Israel’s election campaign ahead of the October 27, 2026 vote is being shaped more than ever by deep economic tensions. Although the country’s headline economic indicators may initially appear encouraging, expert assessments point to a widening gap between macroeconomic figures and voters’ everyday financial realities.

Al Jazeera reports that Benjamin Netanyahu, who has long dominated Tel Aviv’s foreign and security policies, is now being forced to confront mounting financial challenges and the staggering costs of war. Meanwhile, the opposition is using these pressures to attack his economic record.

Strong Economic Growth Amid War

Israel’s economy continues to grow despite the direct costs of the war exceeding 405 billion shekels (approximately $133 billion), according to estimates by the central bank. Israel’s GDP grew by 3.2% in the first half of 2026, while the International Monetary Fund forecasts growth of around 4.5% for the full year. Foreign investment in the technology sector has also reached record levels.

Behind these positive figures, however, much of the revenue generated by economic growth is being directed toward military institutions, widening social inequality. The central bank has estimated the direct and indirect costs of the war at more than 405 billion shekels and warned that some of these costs are still in their early stages. The key question is whether economic growth can ease the burden of war on voters.

Public dissatisfaction with the rising cost of living has continued to grow. Inflation and soaring housing prices are putting significant pressure on middle-income households, potentially making economic hardship a decisive issue at the ballot box.

Budget Deficit and Cuts to Social Spending

In a major fiscal move, Netanyahu’s government approved a 4.9% cut to civilian ministries’ budgets, worth 2.6 billion shekels, to help finance military spending and cover the budget deficit. Education and public welfare are among the sectors affected, while funds allocated to the governing coalition have reportedly remained untouched.

Israel’s budget deficit, projected to reach 4.9% of GDP this year, has become a major concern for economists. Continued military expenditure and purchases of foreign equipment are also driving up public debt. According to Globes, recent progress in narrowing the deficit has largely resulted from higher tax revenues rather than structural reforms to military spending.

Critics argue that the costs of war are increasingly being borne by middle-income households and working people through cuts to welfare and education, while funding for the ruling coalition remains protected. This has become a central line of attack for the opposition ahead of the election.

Financial Markets: A Gap Between Appearances and Reality

Israel’s financial markets present a striking contrast. The Tel Aviv TA-35 index and the shekel have performed strongly, supported by foreign investment and the resilience of the technology sector. The shekel has strengthened against the dollar, while stock-market indices have reached record levels.

Yet these gains have not eased concerns over inflation and housing affordability. Home prices and rents have reached record levels, weakening the purchasing power of middle-income households. Economists warn that prioritizing military expenditure could leave Israel facing long-term structural problems and mounting debt.

The IMF’s forecast of 4.5% economic growth has encouraged optimism about Israel’s resilience. However, opposition figures and critics argue that headline growth may conceal underlying weaknesses, including reliance on technology investment and financial markets, leaving the economy vulnerable to external shocks and security-related instability.

As a result, financial performance has become a central issue in the political contest. While some analysts point to rising market indices as evidence of resilience, the opposition emphasizes the growing divide between financial indicators and citizens’ actual living standards.

The Central Bank’s Policy During the Election Campaign

According to Reuters, the Bank of Israel has decided to pause interest-rate cuts ahead of the October 27 election, seeking to avoid monetary decisions influencing the campaign. Analysts note that any rate change at this stage could be politically exploited by one of the competing camps.

Although the pause has been interpreted by some as a sign of the central bank’s relative independence from the governing coalition, others argue that monetary policy should be determined by economic conditions rather than political timing. Meanwhile, public frustration over the government’s military and economic policies continues to grow, despite official efforts to highlight macroeconomic growth.

Public debt, estimated by some sources at close to 70% of GDP, will also pose a major challenge for the next government. Opposition candidates have offered more attractive economic promises, but questions remain about whether these commitments can be fulfilled under the fiscal constraints created by the war.

Israel’s economic policy is therefore entering a critical electoral crossroads, where decisions made now could significantly shape the country’s future economic trajectory.

Source: IBNA