The MasterBlog: Israel's booming!
Subscribe to The MasterBlog in a Reader Subscribe to The MasterBlog by Email

MasterBlogs Headlines

Monday, November 5, 2007

Israel's booming!

Israel’s economic growth defies experts

By Tobias Buck in Jerusalem

FT.com

Published: November 4 2007 23:15 | Last updated: November 4 2007 23:15

While Israeli and Palestinian negotiators grope their way towards a US-sponsored peace meeting in Annapolis later this year, investors and economists are struggling with a different problem: how to justify the strength of the Israeli economy.

Last year’s botched war in Lebanon, the escalating conflict with Islamist militants in the Gaza Strip, the threat of Iran’s nuclear programme and the weakness of an unpopular and fractious government at home – nothing has so far managed to throw the economy off its high-speed track.

The country’s TA-25 index of leading shares touched record highs last week, and is now up more than a third since the start of the year. Economic growth is forecast to reach 5.2 per cent this year, fuelled by rising consumer spending, buoyant corporate investment and strong exports. Unemployment has fallen steadily, and now stands at just 7.8 per cent – down from almost 11 per cent four years ago.

In a radical break with the past, Israel today runs a surplus both in its current account and budget. This has allowed the government to tackle one of the few remaining blotches in Israel’s economic report card – the high debt accumulated during a two-year recession in 2001 and 2002.

Investment banks such as Morgan Stanley forecast that not even a slowdown in the US will stop the Israeli economy from “growing at a reasonably robust pace”.

The economic strength reflects two broad, long-term trends.

The first came in the form of tax cuts, lower welfare spending, privatisations and capital market reforms implemented when Benjamin Netanyahu took over as finance minister in 2003.

The second change has to do with Israel’s successful integration into the global economy – which has proved an increasingly receptive market for its exports of high-technology products, manufactured goods, pharmaceuticals and services such as consulting.

“We are reaping the benefits of something that has happened over the last few years, and that is how well the Israeli business sector has exploited globalisation,” says Leo Leidermann, chief economist at Bank Hapoalim, Israel’s largest commercial bank.

And while Israel’s over-reliance on software and information technology made the country a prime victim of the technology downturn in 2000, today’s export performance is far more balanced.

The country’s remarkable economic success has given a twist to the debate on the “peace dividend” – the additional boost that the Israeli economy could receive through striking a comprehensive peace agreement with the Palestinians and the country’s Arab neighbours.

While previous peace efforts were accompanied by offers to link the Israeli economy with its neighbours, economists today argue that regional integration would be of limited value to the country.

Israel is also no longer dependent on the Palestinian territories as a source of cheap labour. The country’s building sites and orange groves are today filled with workers from Asia and eastern Europe.

For Palestinians, an end to the heavy security measures that stifle economic activity in Gaza and the West Bank is crucial. Living standards there have plummeted as Israel has placed ever heavier restrictions on the free movement of goods and workers within and out of the territories.

Yet analysts agree that a durable peace would lift the Israeli economy. Tourism would benefit from a more benign security environment, as would foreign investment: no big foreign bank has yet set up a retail network in the country.

“If you had a peace treaty signed tomorrow we could reach annualised growth of 6.5-7 per cent owing to higher foreign investment, increased tourism and reallocation of defence spending,” Prof Leiderman says.

Whether failure at Annapolis dents the benign outlook, economists say, will depend on whether a diplomatic setback triggers another violent uprising by the Palestinians.

Serhan Cevik, an analyst with Morgan Stanley, points out in a recent report that global growth has so far offset all political shocks to the Israeli economy.

“But that does not mean full immunity forever,” he adds.

No comments:

Post a Comment

Commented on The MasterBlog

Tags, Categories

news United States Venezuela Finance Money Latin America Oil Current Affairs Middle East Commodities Capitalism Chavez International Relations Israel Gold Economics NT Democracy China Politics Credit Hedge Funds Banks Europe Metals Asia Palestinians Miscellaneous Stocks Dollar Mining Corruption ForEx obama Iran UK Terrorism Africa Demographics UN Government Living Russia Bailout Military Debt Tech Islam Switzerland Philosophy Judaica Science Housing PDVSA Revolution USA War petroleo Scams articles Fed Education France Canada Security Travel central_banks OPEC Castro Colombia Nuclear freedom EU Energy Mining Stocks Diplomacy bonds India drugs Anti-Semitism Arabs populism Brazil Saudi Arabia Environment Irak Syria elections Art Cuba Food Goldman Sachs Afghanistan Anti-Israel Hamas Lebanon Silver Trade copper Egypt Hizbollah Madoff Ponzi Warren Buffett press Aviation BP Euro FARC Gaza Honduras Japan Music SEC Smuggling Turkey humor socialism trading Che Guevara Freddie Mac Geneve IMF Spain currencies violence wikileaks Agriculture Bolívar ETF Restaurants Satire communism computers derivatives Al-Qaida Bubble FT Greece Libya Mexico NY PIIGS Peru Republicans Sarkozy Space Sports stratfor BRIC CITGO DRC Flotilla Germany Globovision Google Health Inflation Law Muslim Brotherhood Nazis Pensions Uranium cnbc crime cyberattack fannieMae pakistan Apollo 11 Autos BBC Bernanke CIA Chile Climate change Congo Democrats EIA Haiti Holocaust IFTTT ISIS Jordan Labor M+A New York OAS Philanthropy Shell South Africa Tufts UN Watch Ukraine bitly carbon earthquake facebook racism twitter Atom BHP Beijing Business CERN CVG CapitalMarkets Congress Curaçao ECB EPA ETA Ecuador Entebbe Florida Gulf oil spill Harvard Hezbollah Human Rights ICC Kenya L'Oréal Large Hadron Collider MasterBlog MasterFeeds Morocco Mugabe Nobel Panama Paulson Putin RIO SWF Shiites Stats Sunnis Sweden TARP Tunisia UNHRC Uganda VC Water Yen apple berksire hathaway blogs bush elderly hft iPad journalism mavi marmara nationalization psycology sex spy taxes yuan ALCASA ANC Airbus Amazon Argentina Ariel Sharon Australia Batista Bettencourt Big Bang Big Mac Bill Gates Bin Laden Blackstone Blogger Boeing COMEX Capriles Charlie Hebdo Clinton Cocoa DSK Desalination Durban EADS Ecopetrol Elkann Entrepreneur FIAT FTSE Fannie Freddie Funds GE Hayek Helicopters Higgs Boson Hitler Huntsman Ice Cream Intel Izarra KKR Keynes Khodorskovsky Krugman LBO LSE Lex Mac Malawi Maps MasterCharts MasterLiving MasterMetals MasterTech Microsoft Miliband Monarchy Moon Mossad NYSE Namibia Nestle OWS OccupyWallStreet Oligarchs Oman PPP Pemex Perry Philippines Post Office Private Equity Property QE Rio de Janeiro Rwanda Sephardim Shimon Peres Stuxnet TMX Tennis UAV UNESCO VALE Volcker WTC WWII Wimbledon World Bank World Cup ZIRP Zapatero airlines babies citibank culture ethics foreclosures happiness history iPhone infrastructure internet jobs kissinger lahde laptops lawyers leadership lithium markets miami microfinance pharmaceuticals real estate religion startup stock exchanges strippers subprime taliban temasek ubs universities weddimg zerohedge

Subscribe via email

Enter your email address:

Delivered by FeedBurner

AddThis

MasterStats