Without action now, 'damage will be deep and long-term'

Shekel hits 33-year-peak, hammering exports, yet policymakers are insistently inactive

The strength of Israel’s currency is forcing exporters and startups to make tough decisions about hiring abroad and moving R&D centers out of Israel, stirring fears about future growth

Israeli tech exporters and manufacturers are warning of an unfolding economic crisis as the shekel’s rise to a 33-year high threatens to erode major growth engines of the country’s economy. All the while, both the Bank of Israel and the government have remained fairly silent, preferring to avoid dealing with the issue and passing the buck between each other.

The Finance Ministry maintains that the central bank possesses the arsenal of monetary tools that could help temper the shekel’s steep surge. It is currently trading at around 2.90 per dollar, its highest value since October 1993.

The Bank of Israel has a number of policy instruments in its arsenal, the main one being the interest rate. It may also buy or sell foreign currency to moderate the negative impact of shekel appreciation (or weakness) on inflation and economic activity. It has not utilized these capabilities.

Speaking at a conference in early May, Bank of Israel Governor Amir Yaron acknowledged that the shekel’s 20 percent appreciation versus the dollar over the past year hurts exporters’ profitability.

But Yaron declared that while the central bank’s monetary policy tools were broad, intervention in the foreign exchange market was limited to unusual movements in the exchange rate or reserved for the event of market failure.   ​

He said that the strength of the local currency reflects investor optimism about a US-Iran ceasefire deal, robust capital inflows, and the resilience of the Israeli economy despite almost three years of near-constant war.

But tech exporters and manufacturers are warning, with growing intensity, that the strong shekel is putting that resilience at risk.

High-tech companies, R&D centers, are leaving

In the latest plea, the head of the Israel Manufacturers’ Association on Thursday urged the Bank of Israel to take immediate action and lower interest rates, to slow the continued appreciation in the shekel-dollar exchange rate.

“Israel is losing its growth engines, which will have serious consequences for the economy and harm everyone,” Association President Avraham Novogrocki cautioned. “We are losing our technological advantage that was built over decades.”

“High-tech companies and research and development centers are already starting to migrate abroad, and some have already migrated – this is not a theoretical prediction, this is a reality that is happening before our eyes,” Novogrocki said.

Exporters have also called on the Finance Ministry to provide an assistance package, alongside incentives that will continue to make Israel attractive for business operations and investments.

The Finance Ministry and the Bank of Israel declined to comment for this article on possible measures to address the increasingly damaging impact of the strong shekel on Israel’s industry and economy.

Exporters, which include most high-tech firms, traditional manufacturers, and multinational companies, earn their money chiefly outside Israel and are paid in dollars. But they pay workers’ salaries, overhead costs, taxes and other expenses in shekels, which have become more expensive due to the strength of the local currency.

This is forcing businesses to make tough decisions, with damaging domestic consequences.

Liad Agmon, CEO of Israeli startup Sunsay and a former partner at venture capital fund Insight Partners, said he asked his team to hire workers from outside Israel as much as possible, as it is “simply not viable to pay Israeli salaries anymore.”

“Companies I’m invested in are making advanced plans to move operations out of Israel,” Agmon wrote on the X platform on Wednesday. “Industrial export companies are close to the brink of bankruptcy.”

Agmon said a lot could be done about the situation, but lamented there was no one to lead the way in Jerusalem.

The public will pay

Novogrocki warned that the losses will be suffered not only by local companies but will trickle down to the general public.

“Without any action, the Israeli public will pay the price of higher taxes, reduced public services, and damage to the quality of employment,” he said.

Exports make up as much as 40% of Israeli economic activity. In the first three months of the year, exports of goods dropped 5% after declining 7.4% in 2025 in shekel terms, according to Central Bureau of Statistics data.

“For now, the economy is still showing extraordinary resilience despite three years of war, and there is no doubt that a large and significant part of our relative good economic situation is due to the high-tech industry, which has been carrying the economy on its back,” Gali Ingber, head of finance studies at the College of Management Academic Studies, told The Times of Israel. “With the continued strength of the shekel, the industry we need to be the most concerned about is high-tech.”

The local tech industry generates about 20% of GDP, and is responsible for over 50% of exports and about 30% of payroll taxes. It also employs about 11% of the country’s workforce.

“Israeli high-tech is probably the industry most sensitive to the dollar exchange rate, because most of its revenues are in dollars while a large portion of its expenses — especially wages — are in shekels,” agreed Manpower Group Israel CEO Dror Litvak. “When the shekel strengthens greatly, it erodes profitability, especially in startups and growth companies that have not yet reached full profitability.”

“Currently, there is no dramatic wave of layoffs due to the shekel-dollar exchange rate, but we are seeing a change in employer behavior: Companies are becoming much more cautious, they are lengthening recruitment processes and are re-examining each recruitment in terms of cost and productivity,” Litvak said.

Snowball effect

With no sign of a reversal in the surge of the local currency and with no stated intention by the government or the Bank of Israel to intervene and assist, there is reason to worry about the impact on the entire economy, said Ingber.

If nothing is done to stem the continued strengthening of the shekel, export losses could reach NIS 31.5 billion ($10.9 billion) by the end of this year and incur a loss of NIS 3 billion (roughly $1 billion) in government tax revenues in 2026, according to estimates by the Israel Manufacturers’ Association.

“We are at a critical point as companies reliant on exports continue to face losses as they earn less, and their products become less competitive, and as a result, they will start to lay off employees,” said Ingber. “Businesses, especially in high-tech, which is more mobile, will conclude that it is less and less worthwhile employing workers and producing in Israel, and instead will prefer to hire employees abroad, which will harm local employment, GDP, and government tax revenues.”

“This will trigger a snowball effect as the high-tech industry pretty much holds the economy together and pays most of the taxes,” said Ingber.

Similarly, multinational tech giants from Nvidia to Google and Microsoft with R&D centers in Israel are likely to reconsider hiring employees or expanding operations in the country, as they have alternatives abroad, said Ingber.

Looking ahead, Litvak does not expect a mass exodus of companies from Israel.

But, said Litvak, “we will see more companies testing hybrid models: partial recruitment abroad, outsourcing, or slowing down recruitment in Israel.”

The overly strong shekel also has a deflationary force, as it makes imports cheaper, restrains price increases and credit costs for consumers, and enables the Bank of Israel, which is concerned about price stability, to lower interest rates.

Novogrocki urged the Bank of Israel to take action and immediately cut interest rates by at least 0.5%, to make investment in the local currency less attractive. In the past, the Bank of Israel has intervened in the market by buying tens of billions of dollars to moderate the shekel’s gains, or by lowering interest rates, but it has taken neither step this time.

“Decisions need to be made now, not in six months,” said Novogrocki. “If we do not act now, the damage to the economy will be deep and long-term.”

“It is still possible to stop the dollar drift, but the window of opportunity is closing,” he said.