Full Breakdown
The Impact of the Strong Shekel on Israel's Economy
1/23/2026, 8:35:52 AM
Overview of the Shekel's Strength
In recent months, the Israeli shekel has experienced significant appreciation, reaching levels not seen since the mid-1990s. As of late October 2023, the shekel was trading at approximately NIS 3.14 against the US dollar, a notable recovery from an eight-year low following the outbreak of war with Hamas on October 7, 2023. This strengthening of the currency has been attributed to solid fundamentals driving foreign investments, buoyed by military successes and a decline in Israel's perceived risk premium.
Economic Implications
The strong shekel has both positive and negative implications for the Israeli economy. On one hand, it reduces the cost of imports, benefiting consumers by making foreign travel and goods cheaper. For instance, vacationing Israelis can now enjoy lower prices for flights and accommodations, a welcome change after the disruptions caused by the ongoing conflict. The Bank of Israel reported that the annual inflation rate decreased to 2.6% in 2025, partly due to the shekel's strength.
Conversely, the appreciation poses challenges for local manufacturers and exporters, who face diminished competitiveness in international markets. With exports constituting about 40% of Israel's economic activity, the rising shekel makes Israeli goods more expensive abroad, particularly as many exporters are also contending with a 15% tariff on goods entering the US. In 2025, exports in shekel terms fell by 7.4%, leading to concerns about potential job losses and reduced revenues for local businesses.
Criticism from Industry Leaders
Industry leaders have voiced significant concerns regarding the impact of the strong shekel on manufacturing. Netanel Haiman, head of the economics division at the Manufacturers Association of Israel, noted that the combination of the shekel's strength and the US tariffs creates a "perfect storm" for local exporters. He warned that revenues could drop by up to 30%, potentially resulting in tens of thousands of job losses. Haiman emphasized that while companies have hedging tools to manage exchange rate risks, the current environment is more challenging than during previous conflicts.
Official Responses and Future Outlook
Despite the challenges, some economists remain optimistic about the shekel's trajectory. Alex Zabezhinsky from Meitav Investment House stated that the trend of appreciation is likely to continue, driven by ongoing foreign investments and favorable market conditions. However, he cautioned that a significant market correction or deterioration in the geopolitical situation could alter this trend.
The Israeli government has yet to provide substantial support to exporters facing these challenges. Haiman has called for government intervention to help mitigate risks associated with loans and investments, highlighting the urgent need for fiscal assistance to support the manufacturing sector.
Verbatim Quotes
- “The trend of a stronger shekel is not a technical or temporary phenomenon, but a direct reflection of solid fundamentals driving foreign investments in Israeli companies and capital into the country and the local stock market, amid confidence for a rapid recovery of the economy,” — Alex Zabezhinsky, Chief Economist, Meitav Investment House
- “For many Israeli companies, the current period is even more challenging than during the war with Iran in June,” — Netanel Haiman, Head of Economics Division, Manufacturers Association of Israel
- “A strong shekel is making Israeli goods less competitive, while the companies producing the goods in Israel are paying expenses, including salaries in shekels, which in turn is affecting their profits,” — Alex Zabezhinsky
In summary, while the strong shekel offers benefits to consumers and reflects investor confidence, it simultaneously poses significant challenges for exporters and manufacturers, necessitating a balanced approach to economic policy moving forward.
