Israel's economy contracted sharply at an annualized rate of 3.3% in ​the first three months of the year, the ‌Central Bureau of Statistics said Sunday, as the war against Iran weighed on output.

The ​decline was not as severe as ​a 4% drop forecast in a ⁠Reuters poll of economists, but it demonstrated a continued strain on the country's economy after years of fighting across the region.

The economy grew 2.9% ​in 2025 and was expected to bounce ​back in 2026 to more than 5% growth after a cease-fire was agreed in October to end the Gaza war.

Despite the cease-fire, the Israeli attacks on the Palestinian territory have continued, and since then, Tel Aviv has also been involved in the ongoing U.S.-Iran conflict.

The growth took ​a hit after the U.S.-Israeli attacks on ⁠Iran began on Feb. 28, resulting in weeks of ballistic missile fire from Iran that closed schools while businesses suffered.

The ​Bank of ​Israel currently ⁠sees the economy growing 3.8% this year, depending on whether ​a cease-fire forged last month with ​Iran ⁠holds.

In the first quarter, consumer spending fell 4.7%, exports declined 3.7% and government spending ⁠shed ​4.8%. Investment in fixed ​assets rose 12.6%.

On a per capita basis, the economy shrank ​4.5%.