Israel’s economy is changing, but unevenly, according to Meitav chief economist Alex Zbezynski. He argues that the standard growth figures hide two separate economies: a fast-growing technology engine, and the rest of the economy, which is struggling to keep up. Traditional exports rose only slightly, while the so-called cross-border exports, services and products developed in Israel but manufactured and sold abroad, surged after the AI boom and now account for about half of growth. He says policymakers need to pay close attention, from government incentives to Bank of Israel interest rates.
The numbers show how dramatic the shift has been. Israeli data indicate that these cross-border exports jumped 74% in 2025 from the previous year, a gain of $7 billion. For years, they were steady at about $2 billion per quarter, but in the first quarter of this year they reached roughly $8 billion. Zbezynski stressed that this is not a case of factories moving out of Israel, because ordinary exports of goods made in Israel and sold abroad were not materially hurt. He said last year’s official GDP growth of 2.9% would have been only 1.6% without the contribution of these few companies.
He said the effect is even clearer in the first quarter of 2026, when Israel’s GDP fell 3.8% during Operation "Roaring Lion". Without the exports from these companies, he said, the decline would have been 10.5%. Analysts say much of the rise comes from semiconductors and defense equipment. Nvidia-owned Mellanox, whose intellectual property remains in Israel, has benefited from a surge in communications processors made at TSMC in Taiwan, and its operating revenue in the first quarter of 2026 neared $15 billion, implying annual revenue of about $60 billion. Zbezynski said its growth rate, about 200% year on year, may help explain the central bureau’s data. The same trend is visible at Camtek, Nova and KLA, which have expanded overseas production, partly through acquisitions in Germany and elsewhere.
The high-tech industry association in the Manufacturers Association says the trend is worrying. A recent study found Israeli companies’ production abroad nearly doubled in the first quarter of this year to $7.3 billion, up from $4.9 billion in the previous quarter and about $2.5 billion on average in earlier quarters. Its director, Avi Traub, said nominal dollar exports may be rising, but shekel revenues are being eroded, and warned that companies may cut local manufacturing and shift more production abroad. A senior government economic official told Globes the trend is natural and not alarming, arguing that profitable technology firms manufacturing abroad still bring in taxes and support state revenue. Zbezynski countered that the official growth figures mix two very different stories, strong global AI-linked activity and weakness in the domestic economy, and said the Bank of Israel and Finance Ministry should reconsider rates, investment policy, and incentives.
