Israel's Economy Shows Surprising Resilience Amidst Global Challenges

The Israeli economy has demonstrated remarkable strength, significantly increasing its net loans to foreign economies since the outbreak of the war. As of the end of the second quarter, these loans reached approximately $350 billion, a 46% increase from the pre-war period, totaling $109.75 billion. This net lending, representing loans issued by Israel minus those taken from abroad, constitutes about 50.5% of Israel's GDP. Consequently, Israel ranks fourth globally in net lending relative to its GDP, trailing Norway, Switzerland, and Japan.

Norway's lending capacity stems from its oil and gas revenues, while Switzerland's is attributed to high household savings. Japan, historically a saver, is experiencing an aging population that has reduced its savings rate, with its lending driven by a long period of near-zero interest rates. Israel's surprising economic resilience is primarily attributed to its leading high-tech industry, substantial foreign direct investment (FDI), and robust foreign exchange reserves held by the Bank of Israel. Despite the ongoing conflict, FDI in Israel surged to $329.6 billion by the second quarter of 2026, a nearly 38% increase from before October 7, 2023, indicating strong investor confidence.

Key sectors driving this growth include cybersecurity, defense exports, and services, particularly in high-tech. Israel's services exports showed a surplus of $18.7 billion in the first half of the year. While the goods account deficit narrowed, the overall current account balance shifted to a deficit of $1.35 billion in the first half of the year, down from a surplus of $6.6 billion in the same period of 2025. This shift is partly due to multinational corporations repatriating profits.

The strength of the Israeli economy has also bolstered the shekel, making imports cheaper and allowing more Israelis to travel abroad, a phenomenon exemplified by the high volume of activity at Ben Gurion Airport.