Why Israel’s Economy Is Still Resilient

The future health of the Israeli economy received a substantial boost in 2009 with the discovery of substantial natural gases reserves offshore. The largest of these discoveries, the Leviathan field in the Levant basin, contains an estimated 16 trillion cubic feet of gas.

Israel is expected to become an energy exporter by the end of this decade and the government is planning to establish a sovereign wealth fund to ensure that the windfall proceeds from this unanticipated source of public revenue are wisely invested.

The country’s economy displayed great resilience during the worldwide economic crisis, growing by 1.3% in 2009 while other economies were contracting sharply. This reflected structural differences in the Israeli economy that set it apart from many others. The country’s banks were relatively well capitalized and steep deposit requirements for would-be homeowners prevented the development of a debt financed housing bubble of the kind that occurred in the United States.

Also worth noting is that Israel’s government debt as a proportion of gross national product has declined steadily this century, to 67.6% in 2014 from 96.7% in 1998, according to the Bank of Israel.

Israel (ISL)(EIS) boasts a resilient economy. As you can see from the graph above, the economy didn’t slump into a recession in 2009, unlike most other developed markets (VEA)(EFA). Since 2010, Israel’s average year-over-year GDP growth rate has been 3.7%, which is pretty solid. The service sector accounts for as much as 80% of the country’s GDP. Plus, Israel is a relatively young country with a median age of ~30, and this boosts its economy.

Israel’s government debt as a percentage of its GDP has steadily fallen over the past decade. It stood at 65.9% in 2015 versus 104% in 2004. Other developed economies have much higher ratios. Japan’s (JEQ) debt-to-GDP ratio is a stunning 242%. The lower ratio allows the government to spend on things other than debt servicing, which can boost Israel’s economy.

This article was originally published for MarketViews by dianomi ltd

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