Weaker Dollar Pushes More Israeli Manufacturing Abroad

Israel’s Central Bureau of Statistics says Israeli companies sharply increased production outside the country in the first quarter of this year, as a weaker dollar and war-related disruptions squeeze local industry. Goods sold abroad by Israeli firms without being manufactured in Israel reached $7.3 billion, about 50% more than in the first quarter of 2025 and nearly triple the level typical in previous quarters.

The trend spans several sectors, including high-tech, electronic equipment, chips, pharmaceuticals, chemicals, machinery and plastics. The Manufacturers Association says the war in Iran also prompted some companies, especially in high-tech, to move parts of development and production overseas. Firms are contending with labor shortages and repeated airspace closures after two and a half years of ongoing conflict.

The currency effect is a major driver. The dollar has lost about 20% against the shekel over the past year, cutting exporters’ profitability because they earn in dollars but pay wages, property tax, electricity, water and taxes in shekels. As a result, more companies are shifting production to countries in Asia, the United States and Europe.

Export data for January to May show a mixed picture in dollars and a weaker one in shekels. Industrial goods exports, excluding diamonds, rose 11% in dollar terms to $24 billion, but fell 6.6% in shekel terms to 73.1 billion shekels. Seven of eight major sectors posted declines in shekel terms, led by electronic boards and components, down 11.4% to 22 billion shekels, and chemicals, down 12.8% to 11.8 billion shekels. Pharmaceuticals fell 19.9%, plastics and rubber 18.8%, and food products 14.1%.

Natanel Haiman of the Manufacturers Association said, “Industrial exports in shekel terms have eroded in almost all the main sectors, and the steep drops in the larger industries show the growing pressure on the competitiveness of Israeli industry.” The association estimates lost revenue from the dollar’s decline at 13.7 billion shekels. It says offshore production is not new in Israel, but unlike earlier moves driven mainly by labor costs and proximity to markets, exchange rates are now the main factor.