Weekly Report - November 2, 2026: Israel's election results complicate government formation; 2027 budget faces delays; growth outlook remains resilient; Bank of Israel likely to keep rates on hold
The election results left Netanyahu's bloc with 53 seats, the Zionist opposition with 48 and the Arab parties with 19, leaving neither bloc with a parliamentary majority. President Herzog is expected to begin consultations after the official results are published on November 5. Three main scenarios remain: a minority government led by Eisenkot with Arab support, a unity government involving Netanyahu and Eisenkot, or another round of elections. Coalition negotiations could extend well into 2027, delaying approval of the state budget. Israeli financial markets reacted negatively, with the shekel weakening and government bond yields rising. We believe the main economic risk is a delay in approving the 2027 budget, although we do not see sufficient reason to revise our growth forecast at this stage.
On the monetary front, we have revised our CPI forecast to 0.3% in October and -0.2% in November, with annual inflation expected to reach 1.8% by year-end. Despite the moderate inflation outlook, the shekel's depreciation and increased political uncertainty have reduced the likelihood of a Bank of Israel rate cut in November. We continue to expect the policy rate to remain unchanged at 3.25% through 2027.
Now read on...
Register to sample a report