Israeli manufacturers sharply expand production abroad as the dollar weakens

New data from Israel’s Central Bureau of Statistics, based on the balance of payments for the first quarter of 2026, show a sharp jump in the amount of production Israeli companies are doing outside the country. Goods sold abroad by Israeli firms without passing through Israel reached about $7.3 billion in the first quarter, almost 50% more than the $4.9 billion recorded in the first quarter of 2025 and nearly triple the levels seen in earlier quarters.

The Manufacturers Association says the trend reflects a growing number of Israeli companies producing overseas and selling directly from there to customers around the world. It says the pattern spans many sectors, especially high tech, electronics, chips, chemicals, machinery, and plastics.

The shift comes as the shekel strengthens and the dollar falls. Over the past year, the dollar has lost about 20% against the shekel, squeezing exporters because they earn in dollars but pay salaries, rent, electricity, water, and taxes in shekels. That creates an incentive to move some production to foreign sites, including East Asia, the United States, and Europe.

In dollar terms, industrial goods exports excluding diamonds rose 11% in January to May, from $21.6 billion to $24 billion, compared with the same period in 2025. But in shekel terms exports fell 6.6%, from 78.3 billion shekels to 73.1 billion shekels, meaning companies are bringing in fewer shekels even when dollar sales rise. The association’s economics division estimates the state is losing 13.7 billion shekels because of the weaker dollar.

The article notes that moving production abroad is not new in Israel, citing apparel, textiles, air-conditioning, home appliances, pharmaceuticals, plastics, and irrigation firms that already shifted operations overseas, often first for labor costs and proximity to markets. But it says the exchange rate has recently become a central factor. The article also points to the toll of the past two and a half years of war, including manpower shortages from reserve duty and airspace closures that delayed raw material shipments, development, and exports. During the war with Iran, some Israeli tech companies moved development teams abroad, and it is unclear whether they will return.