Bank of Israel: Markets believe geopolitical situation has improved

• 2026 growth forecast downgraded to 3.8-4% (from 5.2%), with 5.5% expected in 2027, assuming conflict de-escalation by end of April.
• Markets (shekel, stock market, CDS) reflect an improved geopolitical situation, with the shekel at all-time strength and pre-campaign CDS levels.
• A prolonged conflict, especially involving missiles or ground troops in Lebanon, would lead to softer growth, higher inflation, and exacerbate labor supply shortages.

The Bank of Israel Governor discusses the country's economic outlook, forecasting 3.8-4% growth for 2026 and 5.5% for 2027, based on the assumption that current conflicts will de-escalate by late April. He notes the Israeli economy's resilience and positive market reactions, but warns of softer growth and higher inflation if geopolitical tensions persist.