Weekly Report - November 9, 2026: All political scenarios remain on the table; 2027 budget on hold; October CPI and Q3 GDP data in focus next week
Israel's inconclusive election results have complicated government formation and increased the risk of a prolonged political confrontation, potentially delaying approval of the 2027 budget. Eisenkot is seeking to form a minority government quickly, but Lieberman opposes this approach and is pursuing an alternative coalition with the ultra-Orthodox parties in exchange for a compromise on military conscription. A national unity government appears unlikely at this stage but could return to the agenda later in the negotiations. Another round of elections also remains a possibility.
Financial markets have reacted to domestic political uncertainty, alongside the Democratic victory in the U.S. midterm elections and weakness in technology stocks. President Trump's announcement regarding the potential termination of USD 4bn in annual military aid to Israel has added to market concerns.
Meanwhile, economic activity continues to show resilience, supported by strong consumer spending and improving business expectations. The fiscal deficit edged up to 3.3% of GDP in October, from 3.2% in September, but remains well below the government's annual target of 4.9%, supported by strong tax revenues. GDP data will be released in the coming week, alongside the October CPI. Wage growth is moderating, and we expect inflation to remain subdued, with the October CPI forecast to rise by 0.3%. We continue to expect the Bank of Israel to keep interest rates unchanged, despite the recent exchange-rate depreciation.
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