Israel's Current Account Posts Second Straight Deficit on Foreign Profit Repatriation
Israel's current account registered a $500 million deficit in the second quarter of 2026, marking the second consecutive quarter of outflows exceeding inflows, according to data from the Central Bureau of Statistics. This marks a significant shift, as Israel has historically maintained a current account surplus for nearly two decades.
The deficit is primarily driven by increased profits repatriated by foreign-owned companies operating in Israel, particularly in the high-tech sector, fueled by the AI boom. Companies like Nvidia are generating record profits, which are recorded as income for their foreign owners, leading to a $7.8 billion deficit in the primary income account. This outflow effectively erases the substantial surplus generated by Israel's trade in goods and services.
Despite a record $7 billion surplus in goods and services, largely due to a $10.2 billion surplus in services driven by high-tech exports, the primary income deficit consumed approximately 77% of this surplus. The services export sector, especially high-tech, reached nearly $27 billion in the quarter, with high-tech accounting for about 73% of business services exports.
An additional factor contributing to the deficit was a sharp decline in the secondary income account, which includes current transfers, falling to $0.3 billion from $1.1 billion in the previous quarter. The deficit in the primary income account has been consistent, with a similar deficit in the first quarter and a record $15.6 billion deficit in the first half of 2026, significantly higher than the $8 billion deficit for all of 2025 and $2.1 billion in 2024.
Analysis indicates that 97% of the deterioration in the primary income account compared to the same quarter last year is due to increased payments to non-residents. Foreign income from investments in Israel rose to $13.7 billion, with 85% stemming from direct investment, meaning ownership of companies. Israeli income from foreign investments remained largely unchanged. This trend, identified in 2025, has doubled in 2026, driven by the profitability of foreign AI companies in Israel. Profits not distributed as dividends but reinvested are recorded as direct investment inflows, creating an accounting outflow in the current account without immediate pressure on the shekel.
This situation highlights a new economic structure where Israel is not only exporting technology but also ownership of its returns. The decision on whether profits remain in Israel or are repatriated rests with the boards of foreign companies, not Israeli economic authorities. A slowdown in AI profitability or a shift towards profit distribution could lead to actual foreign currency outflows.
