Nvidia accounts for 90% of Israel’s production abroad, and it’s reshaping the GDP numbers
Production outside Israel has climbed to NIS 25.4 billion, widening the gap between headline economic growth and activity taking place inside the country.
The national accounts data released on Monday initially prompted little reaction. Israelis have become accustomed to the economy weathering periods of war, and few were surprised that economic activity rebounded in the second quarter.
But one line in the Central Bureau of Statistics announcement deserves far more attention than it has received. The CBS said that when “production abroad” is excluded, the Israeli economy grew by just 1% over the past six months, a relatively weak rate that raises questions about the underlying strength of the domestic economy and the economic standard of living of Israelis.
“Israeli production abroad” is largely a code name for chips developed by Israelis at Nvidia, formerly Mellanox, but manufactured outside Israel. The exact breakdown by company is not publicly available, but Calcalist has learned that more than 90% of Israeli production abroad is related to Nvidia, with an even larger share linked to software companies. Other Israeli companies also produce abroad, including defense companies and potentially traditional manufacturers seeking to cope with the strong shekel.
The CBS says that Israeli production abroad has always existed, but until recently it did not consider the phenomenon significant enough to warrant separate treatment. That has now changed. The phenomenon has become large enough for the statistics agency to publish growth figures both “with” and “without” production abroad.
And the numbers show why.
In the first quarter of 2023, only NIS 5.3 billion of Israel’s GDP, about 1.3% of total GDP at the time, was generated outside the country’s borders. By the second quarter of 2026, that figure had risen to approximately NIS 25.4 billion, or 5.7% of total GDP.
In other words, for every NIS 100 of GDP attributed to Israel, roughly NIS 6 is now generated outside the country’s borders.
The annual figures tell an even more striking story. In 2023, approximately NIS 25 billion of Israeli GDP was produced abroad. In 2024, the figure rose to about NIS 32 billion, and in 2025 to approximately NIS 56 billion. If production abroad in the second half of 2026 matches the first half, it would reach roughly NIS 93 billion for the year.
These figures matter because they increasingly affect the headline growth numbers.
When growth is calculated without production abroad, the gap between the underlying domestic economy and the headline figure becomes progressively larger. In 2023, growth excluding production abroad was 1.9%, just 0.1 percentage point below overall GDP growth. In 2024, the gap widened to 0.4 percentage point. In 2025, it reached 1.4 percentage points.
The figure published on Monday for 2026 shows how quickly the gap is widening: growth excluding production abroad was just 1% over the relevant six-month comparison, 2.2 percentage points below the overall growth rate of 3.2%.
The fact that an increasing share of Israeli GDP is generated outside the country is more than an interesting statistical curiosity. It may help explain part of what has looked like an Israeli economic “miracle” during wartime, the resilience of GDP and tax revenues despite the disruption to domestic economic activity.
But it also has potentially significant macroeconomic implications. The Finance Ministry and the Bank of Israel should be examining them now, because the distinction between GDP attributed to Israel and economic activity taking place in Israel may increasingly matter for economic policy.
There are at least three areas where this distinction is important: growth, interest rates and tax revenues.
According to conventional economic models, Israel’s potential growth rate is around 3.5% a year. But that estimate is based on the economy’s ability to utilize domestic factors of production, including local labor, machinery, equipment and capital.
If another NIS 100 billion a year can be generated by Israeli companies outside the country's borders, that could potentially allow Israel to sustain a higher headline growth rate than it otherwise could.
But there is another way of looking at the same phenomenon.
If a growing share of the economy's output is generated abroad, domestic economic activity may be considerably weaker than the headline GDP figure suggests. In that sense, what appears to be a strong recovery from war may partly reflect growth that does not translate into additional economic activity inside Israel.
That distinction matters particularly when assessing living standards. GDP generated abroad can contribute to national income and corporate profits, but it does not necessarily create the same domestic employment, investment, wages, tax payments and demand for local services as production taking place inside Israel.
The result is that the headline GDP figure may increasingly provide an incomplete picture of the economic experience of people living and working in Israel.
The distinction also matters for monetary policy.
When an economy is growing rapidly, central banks typically worry that it may be approaching the limits of its productive capacity. If interest rates are cut and more money enters the economy, demand may rise faster than supply, generating inflation rather than additional output.
A superficial reading of Monday's GDP figures could therefore lead to the conclusion that the Israeli economy is operating close to full capacity, potentially making the Bank of Israel more cautious about cutting interest rates.
But if a significant part of that growth comes from production taking place outside Israel, the implications for domestic capacity are different.
Output generated abroad does not necessarily compete for Israeli workers, factories, commercial space or other domestic resources. Its contribution to domestic inflationary pressure may therefore be smaller than its contribution to headline GDP.
That could give the Bank of Israel more room to consider interest-rate cuts if other economic conditions support them, rather than assuming that strong headline GDP growth necessarily means the domestic economy is overheating.
Production abroad is undoubtedly beneficial for the state’s revenues. Israeli companies can generate profits from production overseas while still paying corporate taxes in Israel.
But production inside Israel generates a much broader tax ecosystem.
Employees working in Israel pay income tax. Companies renting offices and factories generate property and other tax revenues. Local suppliers and service providers earn income and pay taxes of their own.
That means two economies can generate the same amount of GDP while producing very different fiscal outcomes for the Israeli government.
As production abroad becomes a larger component of GDP, the Finance Ministry and Bank of Israel therefore need to distinguish between GDP attributed to Israel and GDP generated through economic activity physically taking place in Israel when assessing future tax revenues and the government's fiscal capacity.
There is no question that Israeli production abroad is, in itself, a positive development. It reflects the country's comparative advantages and the ability of Israeli companies to build globally competitive businesses whose operations extend far beyond Israel's borders.
But its rapid growth is changing the meaning of Israel's macroeconomic data.
The CBS has done an important service by highlighting the distinction between GDP including and excluding production abroad. The gap is no longer a statistical footnote. It is becoming large enough to affect how we understand growth, inflationary pressure and government revenues.
The Israeli economy may indeed be recovering from the war faster than expected. But the headline GDP number increasingly tells only part of the story.
The next step should be for the Finance Ministry and the Bank of Israel to incorporate this distinction into their economic analysis. As more of Israel's economic output is generated beyond its borders, the country needs to distinguish between an economy that is growing and an economy that is growing inside Israel.
Those are increasingly becoming two different things.
