International credit rating agency S&P released a review of the Israeli economy that does not include a rating action. The review discusses Israel’s political situation in detail, and raises the agency’s growth forecast for the Israeli economy to 5.5% for the current year and 7% for next year, primarily thanks to the impact of Nvidia’s activities on the Israeli economy.
The agency assesses that security risks will remain high, and that there is a risk of another round of hostilities between Israel and Iran. It expects that uncertainty in the Middle East will persist, and that the conflict will continue into 2027.
The agency anticipates that economic growth will remain robust, but that fiscal pressure will persist, driven by high defense expenditures.
The agency’s upward revision of its growth projections stems partly from the increased contribution of overseas production by multinational technology companies registered in Israel, such as Mellanox (acquired by Nvidia in 2020), and intellectual property developed in Israel but sold globally. The Central Bureau of Statistics has presented two separate GDP series: one that includes production abroad, and one that excludes it. According to the agency, this is similar to the practice in Ireland, where the activities of global technology companies also inflate GDP. However, the agency notes a key distinction: while the distortion in Ireland is driven primarily by foreign multinational corporations, the situation in Israel reflects an increase in production abroad linked to technology and intellectual property developed within Israel. Consequently, the agency has decided to base its growth forecast for Israel on the overall figure.