- Jun 29, 2011
- Reaction score
Never mind the collapse in confidence in Europe, the Palestinian proposal for United Nations recognition and heightened tensions with neighboring Egypt and longtime ally Turkey. The Israeli economy just keeps growing faster than the rest of the developed world. The International Monetary Fund this week raised its forecast for the country and cut its estimate for the global economy on the impact of the European debt crisis. Israel's gross domestic product will expand 4.8 percent this year, according to the Washington-based lender. That's up from an April forecast of 3.8 percent and triple the pace for the average of the 34 advanced economies.
Citigroup Inc. said on Sept. 18 it would establish a new Israeli research center and Standard & Poor's a week earlier raised the country's credit rating. It cited the discovery of two gas fields off the coast of Israel that hold an estimated 25 trillion cubic feet of the fuel. Mellanox Technologies Ltd., the 12-year-old Israeli adapter maker part-owned by Oracle Corp., says sales will grow 80 percent in the third quarter. “The Israeli economy is very vibrant,” Finance Minister Yuval Steinitz said in a Sept. 20 interview with Bloomberg Television. “We enjoy very low unemployment and nice economic growth and this is mainly because we managed to develop very advanced high tech industries and very strong exports.”
Technology Capital: The stock market in Israel, whose population of 7.8 million is similar to Switzerland's, was upgraded to developed-market status by MSCI Inc. in May 2010, the same month the 63-year-old country was accepted into the Paris-based Organization for Economic Cooperation and Development. The country has about 60 companies traded on the Nasdaq Stock Market, the most of any nation outside North America after China and is also home to the largest number of startup companies per capita in the world.
Israel ranks third in terms of projected growth this year among MSCI's list of 24 developed economies, after 6 percent for Hong Kong and 5.3 percent for Singapore, according to the IMF. “Israel's exports are high-added value exports like informatics and technology,” said Jean-Dominique Butikofer, a fund manager who helps oversee about $1 billion of emerging- market debt at Union Bancaire Privee in Zurich, including quasi- sovereign Israeli bonds. “They're not exporting Gucci bags. If there's a slowdown, these are the kind of assets that are good to have.”
Talent Pool: Venture-capital backed Israeli technology companies raised $364 million in the second quarter of this year, a 77 percent jump from the $206 million raised in the year-earlier period, according to PricewaterhouseCoopers LLP Moneytree report. Seventy-six companies raised funding in the three-month period, compared with only 60 last year, the report said. “One reason that the economy continues to do well is the component of innovation and ability to adapt to a changing environment,” Citigroup Israel Managing Director Ralph Shaaya said in explaining the New York-based bank's decision to locate a research center in Israel. ‘There is a rich pool of talent in the high tech sector. The propensity for innovation is high.”
For Mellanox, orders are persisting even as global growth falters. “In these situations people tend to look for products that do more with less,” Chief Executive Officer Eyal Waldman said in an interview on Aug. 29. “We still see the orders going in so we don't feel the macro waves coming.” Shares of Mellanox have jumped about 28 percent in Tel Aviv trading this year, compared with a 21 percent drop on the benchmark TA-25 index. In New York, shares gained about 23 percent, compared with a drop of about 4 percent in the Nasdaq composite index.
Lowest Jobless Rate: Israel has emerged from economic turmoil before. In 2000, as peace with the Palestinians looked possible following the 1993 Oslo accords and the Israeli technology industry took off, growth was at 9.1 percent. Then, in December, the second intifada, or Palestinian uprising, broke out, just as the technology bubble burst on world stock markets. In 2001, Israel contracted by 0.1 percent and in 2002, by 0.6 percent. By 2004, growth had returned to 5.1 percent; it reached 5.7 percent in 2006. Israel's unemployment rate declined to 5.5 percent in the second quarter of this year, the lowest level since at least 1985.
Still, next year's IMF outlook of 1.8 percent growth for the U.S. and 1.1 percent growth for the euro area, Israel's two main markets, is likely to moderate demand for the country's exports, one of the main growth engines of the $217 billion economy. The Palestinian statehood bid could give the new entity more legal clout or raise nationalism pressure should the Security Council vote to reject it.
Standard & Poor's raised Israel's credit rating earlier this month to A+, its fifth-highest investment-grade rating, just a few weeks after cutting the U.S. and before cutting Italy. S&P cited the two gas fields, Tamar and Leviathan, off its Mediterranean coast.
“You have a situation where the global economy is clearly running into a roadblock and having a tough time while the Israeli economy is going to bend but it isn't going to break,” said Daniel Hewitt, senior emerging-market economist at Barclays Capital in London. “We think Israel can maintain positive growth. Israel has a strong economy with a strong base.”