Bank of America sees strong GDP growth of 4.2% in Israel in 2026, followed by 4% in 2027. Their analysts expect the interest rate in Israel to fall from 4.25% to 3.25% in 2026 and remain unchanged in 2027.
Bank of America observes that the most likely scenario is to maintain the status quo of "no war, no peace," with a continued risk of disruptions to shipping in the Red Sea.
However, the bank's analysts note that tensions between Israel and Iran may resurface, but with lower intensity than the most recent war, and that tension levels may also increase in relation to Lebanon and Gaza.
'Reduced geopolitical tensions could contribute to a decline in risk to Israel's economy'
Among the risks to the Israeli economy, Bank of America cites geopolitical events, a deterioration in the security situation, an economic slowdown, and instability in the financial sector. On the other hand, the bank's analysts estimate that reduced geopolitical tensions could contribute to a decline in risk.
In light of the forecast, the bank maintains an Overweight rating on Israel, given "attractive pricing and a solid fiscal outlook." The bank also notes that the debt level has declined since the global financial crisis, but it has recently increased.
Bank of Israel says that although geopolitical risk remains high, the strong surplus in its current account, alongside growth supported by low interest rates and a healthy private-sector balance sheet, supports its rating.