In a previous column, I wrote at length about the resilience and strength of the Israeli economy, which delivered impressive performance even during two years of difficult, multi-front war. Israel is considered a developed economy, yet its growth resembles that of an emerging market, and is certainly stronger than that of many Western economies. That alone is a rare distinction. This article focuses on the shekel, Israel’s currency, which has not too long ago been described as “the strongest currency in the world.” In recent years, it has responded powerfully to Israel’s economic growth.
As of this writing, the shekel is trading at just over NIS 3 to the dollar. For reference, on the eve of the war in October 2023, the dollar hovered around NIS 3.8. This is no coincidence. The shekel did not strengthen against the dollar by chance. It did so because it represents a strong and resilient economy, one that remained robust even through two complex years of war. The currency’s appreciation reflects the solid fundamentals underpinning the Israeli economy today. Among the drivers of the shekel’s strength are investors purchasing shekels because of their confidence in Israel’s economy; multibillion-dollar defense contracts worldwide; and major natural gas export deals that bring substantial capital into Israel, much of which is converted into shekels, reinforcing the local currency.
Massive investment in Israel’s high-tech sector has also injected significant dollar inflows into the economy. Those dollars are converted into shekels to cover local expenses and finance corporate activity, further bolstering the currency. Additional factors contribute to the shekel’s attractiveness, including interest rate differentials relative to markets outside Israel and foreign demand for Israeli real estate. These are coupled with realistic expectations that Israel’s growth will outpace that of the United States and Europe, a prospect that continues to draw investors. Is such resilience guaranteed forever? In economics, nothing is permanent. Yet the foundations of the Israeli economy – which weathered both the COVID-19 pandemic and a two-year war, remain strong.
They support ongoing growth, rising stock market indices, and expansion in the real estate industry. Israel has demonstrated resilience in crises that few could have foreseen. However, it is crucial to remember that behind this consistent performance are the Israeli people: innovative, resilient, and deeply dedicated to their work – optimistic, passionate, disciplined and ambitious. With such human capital, there is strong reason to believe that Israel will continue to advance, introduce solutions globally, foster innovation, expand, and succeed. Consequently, the Israeli shekel is expected to remain an attractive currency for investors around the world.
Written in collaboration with Mizrahi Tefahot