ISRAEL, November 14, 2026 – Jerusalem’s financial district had a rare reason to exhale on Tuesday afternoon.
Economists had been prepared for slow recovery figures, constrained by incessant spending on defenses, and regional conflicts. But then came news of the figures from the Finance Ministry of Israel: According to the Finance Ministry of Israel, Standard & Poor’s (S&P) not only slightly increased its forecast, but rather dramatically improved upon it. The organization now forecasts Israeli economic growth to be 5.5% in 2026, and 7.0% in 2027.
Five point five percent – in May, the very same experts predicted a weak recovery of 3.1%, followed by 5.9% next year. It was an unprecedented rise, which caught many of the financial observers unawares.
So what’s behind the sudden optimism? Look at silicon, not just storefronts.
It’s suggested that the change by S&P was largely driven by the combination of unexpectedly better domestic performance and higher production abroad from multinational technology companies that operate within Israel. This can be exemplified by looking at Mellanox, which is a world-renowned company in networking whose takeover by Nvidia happened in 2020. The IP developed in the R&D facilities of Israel is now produced and sold worldwide.
Here’s where the accounting gets tricky, though. The fact of the matter is that there are actually two tracks for calculating GDP by Israel’s Central Bureau of Statistics – one including foreign production related to domestic technology companies, and another excluding it. The economic anomaly is sometimes compared to leprechaun economics practiced in Ireland, in which case foreign multinational companies tend to boost GDP numbers.
Still, there was an important difference between how S&P calculated their GDP numbers. In contrast to Ireland, where foreign companies simply use the country as an address for headquarters, in the case of Israel, the overseas production is a result of domestic engineering and intellectual property.
Not everyone is popping champagne just yet.
Behind these gleaming numbers lies a persistent fiscal problem. Defense spending is still high, and the government is projecting a deficit of 4.5% of GDP in 2026 and 4.6% in 2027, while public debt will rise to 65.2% of GDP by 2029. But there is a big caveat in S&P’s “stable” outlook – it assumes that regional military conflicts can be contained. Analysts do not hide the fact that it is not certain; a single flare-up in the northern region or with Iran could upset these well-prepared spreadsheets within a few days.
S&P clearly counts on technology more than on fiscal issues. Should the risks of security problems decrease and the economy meet its growth projections, the possibility of upgrading the sovereign credit rating was even mentioned by analysts.
For now, companies on Rothschild Boulevard are enjoying their victory. Forecasting 7.0% growth in such an unstable region may seem quite ambitious, even irresponsible, unless, of course, you are counting on Israeli engineers to outpace the headlines.
