Israel economy shows 15.4% GDP growth driven by AI and chip exports

Israel's economy reported a significant annualized GDP growth of 15.4 percent in the second quarter of 2026. However, much of this expansion is attributed to offshore production from chip and AI companies, such as Nvidia, Nova, and Camtek. Without these export-oriented effects, domestic growth was recorded at 14.4 percent.

Within the iShares MSCI Israel ETF, defense and banking sectors are providing stability. Defense contractor Elbit Systems reported a second-quarter profit of 4.14 USD per share, exceeding analyst expectations, and reached a record order backlog of 32 billion USD. Additionally, Bank Hapoalim reported a quarterly profit of 830 million USD and increased its payout ratio to 50 percent.

Despite low inflation of 1.5 percent, the Bank of Israel has signaled caution regarding interest rate cuts. Central Bank Governor Amir Yaron indicated that the upcoming decision on September 1, 2026, remains open, with the benchmark interest rate currently held at 3.5 percent due to labor market uncertainties and fiscal risks. Meanwhile, the iShares MSCI Israel ETF faces upcoming MSCI index reweighting on August 31, 2026.