Population 7.697 million
GDP 246.78 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
4.8 |
4.7 |
3 |
3 |
|
Inflation (yearly average) (%)
|
2.7 |
3.4 |
1.8 |
2 |
|
Budget balance (% GDP)
|
-3.7 |
-3.3 |
-4 |
-3.5 |
|
Current account balance (% GDP)
|
2.9 |
0.8 |
-0.6 |
-0.2 |
|
Public debt (% GDP)
|
76 |
74 |
75 |
75 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Open and diversified economy, strengthened by the country’s admission to the OECD in 2010
- Industry dominated by high-tech products
- Highly qualified workforce
- Political and financial support of the United States and the diaspora
- Production of natural gas from 2014 from large offshore reserves
WEAKNESSES
- Political fragmentation and weak coalition governments
- Stagnation of peace talks between Israel and the Palestinians
- Insecurity undermining economic potential
- Relatively high public debt
Risk assessment
New government coalition more fragile and slight decline in growth expected in 2013
The early legislative elections at the end of January 2013 resulted in a weakening of the conservative bloc – formed by the right-wing Likud party allied with the ultranationalist Yisrael Beytenu party – led by the outgoing prime minister, Benjamin Netanyahu, and a breakthrough by the new centrist Yesh Atid party (Future party). The new coalition government formed again by B. Netanyahu in mid-March – with the addition of centrist parties, including Yesh Atid, and a newly formed ultranationalist party, Bayit Yehudi (Jewish Homeland), to the detriment of the ultraorthodox parties – is accordingly more fragile than the previous coalition, made up as it is of members with strongly differing political views and opposing interests.
Economic growth is expected to decline slightly compared with 2012, particularly because of sluggish demand from Israel’s main trading partners, the European Union and, to a lesser extent, the United States, offset, however, by a certain amount of vigour from Asia. On the domestic demand side, investment should be stimulated by the gas exploitation. However, private consumption, which was partially sustained by the social measures taken by the authorities in favour of the less advantaged sections of the population, could be hit by budget cuts and the forecast rise in taxes.
Probable fiscal tightening and comfortable external financial situation
In late 2010, the authorities adopted a biennial fiscal budget, justified by an attempt to limit the parliamentary debate attributable to the existence of precarious government coalitions. The outgoing strongly right-leaning coalition government favoured economic liberalism – notably, via tax and public spending cuts and privatisations – but large popular demonstrations in 2011 and 2012 forced it to adopt measures aimed at softening the impact on low-income households of price rises on staples and of housing issues. The new coalition government, which overall favours the same economic direction, will probably proceed with budget cuts and higher taxes, despite the unpopularity of these measures, so as to succeed in cutting the deficit in 2013. The main items of public spending will, nevertheless, continue to be debt servicing, defence and education, while the ratio of public debt to GDP will remain fairly high.
After widening sharply in 2012, the trade deficit is expected to improve in 2013. Exports of goods to Europe and the United states (30% of the total each) will hardly advance, but sales to Asia (20% of the total) will increase moderately. Exports of services to businesses – mainly software and related high-tech products - are expected to grow modestly, while tourism could shrink. Overall, the current account is likely to come close to equilibrium, while the country enjoys a sound external financial situation due to manageable external debt (around 40% of GDP) and a substantial level of foreign currency reserves (thought to represent a little over 8 months of imports by the end of 2013).
Modest growth outlook for business activity
Business activity overall is likely to increase modestly in 2013, while the manufacturing sector is set to climb moderately due to slower export sales growth but also lower sales on domestic market. Growth in sales of services is expected to be more moderate, both in Israel and abroad, despite satisfactory competitiveness. Distribution is likely to remain steady, despite a rather unfavourable general context, as are transport and communications sectors. Further contraction is expected in the hotel sector due to a probable fall in tourist numbers. Finally, the construction sector could slow, chiefly because of price and financing constraints.
Strong banking sector and sound financial position of businesses
Highly concentrated and focused on domestic activity, the banking system is strong and well capitalised, with a limited non-performing loans portfolio. However, excessively prudent management means profitability is mediocre.
Israeli businesses are generally fairly well able to withstand the vagaries of the economic situation and any credit restrictions. They are in a reasonable financial position and Coface’s payment record is generally a bit better than the world average.
