Israel's Strong Shekel Hurts 18% of Businesses, Especially High-Tech and Finance Sectors

The Central Bureau of Statistics and Bank of Israel released data from a June business trends survey examining the impact of the shekel's appreciation against the dollar over the past six months. The findings reveal that 18% of companies, representing about 11,940 businesses, reported significant economic harm due to the stronger shekel, while only 3% experienced positive effects. The survey targeted business managers with at least five employees, covering approximately 67,000 companies nationwide.

The definition of "significant harm" was based on subjective self-assessment rather than strict financial criteria. Nevertheless, the affected companies employ nearly half a million workers, indicating substantial consequences for the Israeli economy. The damage was uneven across sectors, with the highest impact in high-tech and finance, where 49% of firms reported negative effects. These companies employ 58% of workers in those industries, suggesting larger tech firms bore the brunt. In contrast, 28% of non-tech industrial firms and only 9% of construction companies reported harm.

Surprisingly, about one-third of the affected businesses do not export or have minimal export activity, highlighting how exchange rate shocks ripple through the economy via indirect channels. These include local contracts indexed to the dollar, tourism declines due to higher costs for foreign visitors, and supply chain effects where local suppliers to large tech firms face cutbacks as those firms reduce expenses.

Among harmed companies, 34% absorbed exchange rate losses by reducing profit margins, potentially leading to lower profitability and halted hiring or benefits. Around 19% raised their selling prices, and 15% took active cost-cutting measures such as delaying investments or scaling back operations. Only 7% reported using financial hedging tools to lock in exchange rates, mostly larger firms with dedicated finance departments. Most hedging (58% by employment share) was long-term, exceeding six months.

The survey also found that exchange rate changes quickly affect product prices: 23% of affected firms saw price impacts within a month, and 22% expected effects within one to three months. This short-term price pressure was especially notable in industry and construction, where over half of harmed businesses anticipated price changes within three months, compared to about 30% in trade. Conversely, 18% of affected companies reported no expected price impact from exchange rate shifts.