Israel's economy began 2026 with a slowdown, hit by war with Iran, but growth is expected to recover as long as the conflict does not reignite. Gross domestic product contracted at an annualised rate of 3.3% in the first three months of 2026, the Central Bureau of Statistics said on Sunday, less severe than a 4% drop forecast in a Reuters poll of economists. Israel's economy grew 2.9% in 2025 and was expected to bounce back in 2026 to more than 5% growth after a ceasefire in October ended major fighting in the two-year Gaza war. But growth took a hit after the U.S. and Israel launched strikes against Iran on February 28, resulting in weeks of ballistic missile fire from Iran that closed schools and dampened business activity along with consumer spending.