- Israel’s Finance Ministry Chief Economist Shmuel Abramzon now projects annual GDP growth above 4% for 2026, beating the Bloomberg analyst consensus of 3.6% and previous official forecasts, almost entirely because of the “Nvidia effect” — the economic contribution of Nvidia Networking, Israel’s 6,000-employee Nvidia R&D hub that was acquired as Mellanox in 2020 and has grown into one of Nvidia’s most important engineering centers as global chip demand has exploded.
- The scale of the Nvidia effect is remarkable: Israeli GDP growth in H1 2026 was 3.2%, but strips down to just 1% when services sold abroad (including Nvidia’s Israel-attributed revenues) are excluded — a 2.2 percentage point gap that reveals how dependent Israeli economic performance has become on a single company’s R&D output; retroactive GDP revisions also lifted 2024 growth by 0.7pp to 1.7% and 2025 growth by 0.6pp to 3.5%.
- The Nvidia windfall is helping absorb the staggering financial burden of Israel’s ongoing wars: the combined conflicts — beginning with Hamas’s October 2023 attack and extending through Israel’s February 2026 US-led military campaign against Iran — have so far cost 400 billion shekels ($132 billion), approximately 20% of annual GDP, yet Israel still attracted a record $26 billion in FDI in 2025 and another $14 billion in Q1 2026 alone.
- Israel’s equity and currency markets tell a counterintuitive wartime story: the Tel Aviv 35 benchmark is up approximately 130% from pre-war levels and the shekel has gained 27% over the same period — performance driven by tech export revenues and foreign investment that is 90% US-sourced, though authorities are now actively seeking to diversify toward UAE, Asia, and the broader Middle East to reduce concentration risk.
What Happened?
Israel’s Finance Ministry Chief Economist Shmuel Abramzon said in an interview Thursday that the country’s GDP growth is on track to exceed 4% in 2026, well above the Bloomberg analyst consensus of 3.6% and prior official projections. The upgrade is primarily driven by what he called the “Nvidia effect” — the substantial economic contribution of Nvidia Networking, Israel’s Nvidia research and development center. Nvidia acquired the Israel-based semiconductor company Mellanox in 2020 and has since grown the operation to 6,000 employees. As Nvidia’s global revenues surpassed $300 billion annually by mid-2026 on AI chip demand, its Israel-attributed profits have been retroactively incorporated into Israeli GDP statistics, lifting reported growth by 0.6-0.7 percentage points per year. Israeli GDP growth for 2024 and 2025 was revised up to 1.7% and 3.5% respectively. The country has also continued to attract massive foreign investment despite ongoing military conflicts, drawing a record $26B in FDI in 2025 and $14B in Q1 2026.
Why It Matters?
The Israel-Nvidia relationship illustrates a new dynamic in national economic accounting: when a single multinational’s R&D hub is large enough relative to the host country’s economy, corporate revenue flows can meaningfully distort — or in this case, substantially bolster — national GDP statistics. The 2.2 percentage point difference between Israel’s headline H1 growth (3.2%) and its ex-services growth (1%) is effectively the Nvidia premium. This creates a significant concentration risk: Israel’s reported economic resilience during wartime is partly a function of one company’s chip sales being partly attributed to Israeli operations. If Nvidia’s business slows, Israel’s GDP figures could deteriorate sharply even without any domestic change. The political dimension is also significant: with Netanyahu facing elections next month and the wars costing $132 billion (20% of GDP), the Nvidia cushion is providing fiscal breathing room that may not be durable.
What’s Next?
The election next month will determine who inherits a difficult fiscal equation: rising defense expenditures (with no end to the Iran war in sight after six months of fighting) against a deficit that will require either spending cuts or tax increases. Abramzon was direct: “Israel’s future leader will face difficult decisions, first and foremost regarding the scope of defense spending.” The FDI diversification push — targeting UAE, Asian, and broader Middle Eastern investors to supplement the 90% US-sourced base — is strategically sensible but will take years to shift the composition meaningfully. Watch for whether the retroactive GDP accounting methodology for multinational R&D revenues attracts scrutiny from international statistical bodies, as other small economies with large tech hubs (Ireland being the prior template) have faced similar questions about whether their headline growth numbers reflect genuine domestic economic conditions.
Source: Bloomberg
