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Edited by: TJVNews.com
In the face of numerous challenges, Israel’s economy has exhibited remarkable resilience in the second quarter of 2023, defying expectations and maintaining its solid growth trajectory, according to a report published in August of this year at Reuters. Data from the Central Bureau of Statistics, released in August, unveiled several positive indicators that suggest the nation’s economic prosperity is on track.
Gross Domestic Product (GDP) recorded an annualized growth rate of 3.0% during the April-June period, surpassing analysts’ forecasts that had anticipated a 2.4% expansion. Reuters reported that this performance marks a reassuring rebound from a slightly slower first quarter, where GDP growth had dipped to 2.9% from a prior estimate of 3.2%. While this year’s growth may not rival the astonishing 6.5% pace of 2022, Israel’s economy remains resilient, the Reuters report added.
Israel has emerged as one of the standout performers in 2022 among OECD countries, securing the fourth spot in a ranking compiled by The Economist, as was reported in The Times of Israel. Despite political turbulence that led to five elections in less than four years, Israel’s economy has shone as a “pleasant surprise” in a year marked by global uncertainties and challenges.
The Economist’s ranking evaluates countries based on five key economic and financial indicators: gross domestic debt (GDP), inflation, inflation breadth, stock market performance, and government debt, according to the TOI report. Israel shares the fourth position with Spain, with Ireland leading the pack among the 34 prosperous OECD nations surveyed. Greece and Portugal secured the top two spots, while Latvia and Estonia found themselves at the lower end of the list, as was mentioned in the TOI report. Notably, countries like Japan, France, and Italy also made it into the top 10.
One significant finding in the survey was that countries, including Spain and Israel, not reliant on oil and gas supplies from Russia fared better than average. This highlights the resilience of these economies in the face of geopolitical uncertainties.
The most striking facet of Israel’s economic resurgence is its low 3.6% jobless rate, a testament to its remarkable ability to weather storms. Notably, this progress has occurred amidst the backdrop of political turmoil, primarily related to Prime Minister Benjamin Netanyahu’s controversial proposal to reform the judicial system, aiming to limit the powers of the Supreme Court, as was reported by Reuters.
Liam Peach, Senior Emerging Markets Economist at Capital Economics, commented on Israel’s economic performance, saying, “Israel’s economy is performing relatively well considering various headwinds and GDP continues to grow in line with its pre-pandemic trend,” as was noted in the Reuters report. This sentiment echoes the country’s remarkable resilience in the face of adversity.
However, on a per capita basis, GDP growth stood at 1.1%, reflecting the need for a more inclusive growth strategy. Nevertheless, the overall outlook remains positive, with the Bank of Israel projecting a 3% growth rate for 2023, as was reported by Reuters. In response to the GDP data, Peach raised his estimate to 3.3%, showing increasing confidence in Israel’s economic prospects.
While there are still risks on the horizon, notably stemming from the government’s controversial judicial reforms, analysts like Peach believe that the impact will likely remain limited. Some dissenting opinions, such as S&P Global Ratings, have predicted a more conservative growth rate of just 1.5% for this year. However, Israel has so far defied these predictions and sustained economic growth, even in the face of public anger over high living costs.
Private spending, a key driver of Israel’s economic growth, experienced a significant rebound in the second quarter, rising by 1.9% after a 1.4% decline in the first quarter. Government spending also played a vital role in supporting growth, recording a substantial gain of 3.6%. Nevertheless, challenges persist in the form of a 2.6% drop in exports and a 1.1% decline in investment in fixed assets during the same period.
In addition to the GDP data, Israel’s inflation rate has garnered attention. In July, it eased more than expected to 3.3%, reaching a 16-month low from 4.2% in June. Despite this decrease, inflation still remains above the government’s target range of 1%-3%. The Central Bank opted to maintain its benchmark interest rate at 4.75% in July after ten consecutive increases. The series of rate hikes began in April 2022 when the rate stood at just 0.1%.
While Liam Peach foresees a final rate hike in the next month, most other analysts are beginning to revise their forecasts, with many now considering the possibility of rate cuts in the near future. Citi economist Michel Nies remarked, “We maintain our call for a rate cut in the first quarter of next year, though weak activity data could expedite that process.” On the other hand, Bank Hapoalim’s Victor Bahar believes that rates will remain stable until mid-2024, driven by a weaker shekel that could potentially push up inflation and lead to rising service costs.
Israel’s economy demonstrated impressive growth in 2022, with a projected rate of 6.3%, according to estimates from the Finance Ministry. This came on the heels of an even more rapid expansion of 8.1% in 2021, as the nation rebounded from the COVID-19 pandemic. In comparison, the OECD outlook for global GDP growth in 2022 stands at a more modest 3%.
A cornerstone of Israel’s economic strength lies in its robust export sector, constituting approximately 30% of the country’s economic activity. In 2022, Israeli exports were expected to reach record highs, ranging between $160 billion and $165 billion. This conservative estimate, published by the Economy Ministry’s Foreign Trade Administration, reflects an increase of over 10%. Interestingly, for the second consecutive year, the exports of services, including high-tech solutions and research and development (R&D) services, outpaced goods exports, comprising 51% of the total, with goods making up the remaining 49%.
Within the services category, programming and R&D services continued to lead the list of the most exported services, accounting for 42% and 14%, respectively. This highlights the critical role of the technology sector in driving Israel’s export growth.
Europe stands as Israel’s largest trading partner, with 38% of exports destined for the continent. The Americas follow closely behind at 35%, and Asia represents 24% of Israel’s export market. This diversification of trading partners has contributed to Israel’s economic stability and resilience in the face of global economic fluctuations.
Despite its impressive economic performance, Israel has had to contend with inflation rates that exceeded its target range of 1% to 3%, standing at 5.3% for the last 12 months. However, this rate remains significantly lower than inflation in most developed countries, underlining Israel’s economic prudence in managing inflationary pressures.
As the world looks ahead to the remainder of 2023, Israel faces a somewhat subdued economic outlook. The Finance Ministry recently revised its growth projection for the country from 3.5% to 3%. This adjustment reflects a contraction in consumer spending and a broader slowdown in the global economy, which is expected to grow at a rate of approximately 2.2%. Despite this adjustment, Israel’s economic resilience and adaptability continue to position it as a standout performer on the global stage.
