Good Days Ahead

Israel 1948
Another milestone en route to turning into a highly developed economy, Israel’s per capita GDP will reach $30,000 this summer and the overall gross domestic product will reach $230 billion.
In the first half of the decade The Jewish Country fully reached the $20,000 per capita GDP mark. It happened slowly and reticently; the recession of the second Intifada curbed economic growth and pushed the economy backwards.

Reaching the $30,000 per capita GDP mark partially reflects the increase in real national income in shekels, and the shekel’s strengthening against the dollar.

The state of the Israeli economy at this juncture is exceptionally good. Other economies whose per capita GDP is similar to ours – Spain, Greece, Portugal, and Britain – sustained harsh blows during the financial crisis. Their focus in the coming years will be on licking their wounds and attempting to extract themselves from the abyss of debt and deficit. Their recovery promises to be slow.

In six of the seven leading industrial powers, the ratio between government debt and GDP will grow by dozens of percentage points in the next few years. The debt will reach 90% of the GDP in Germany, 96% in France, 100% in Britain, 110% in the US, 130% in Italy, and 250% in Japan. In Spain, Greece, Portugal, and Ireland, the ratio will stabilize somewhere between the 100% to 150% mark.

Yet in Israel, the opposite should happen: debt will go down to only 70% of GDP. Israel’s banking system managed to overcome the past two years without taking a penny from the government.
Prime Minister Benjamin Netanyahu presented an ambitious goal for Israel: Joining the list of top 10 or 12 richest economies in the world. Based on today’s perspective, this target appears to be realistic. In order to make it happen, Israel needs to reach the $40,000 per capita GDP mark. To that end, the economy must grow at an annual rate of 6.5% in the next six to seven years, assuming that the shekel exchange rate won’t change much from its current level of about NIS 3.6 per dollar, and that the population will grow by 1.8% annually.

In the years 2003-2008, the economy in the Jewish Country grew at an average annual rate of 5.5%, and with a less convenient starting point and two wars in the middle.

The accelerated growth to happen in the coming years can be premised on the following: Tens of thousands of ultra-Orthodox men joining the workforce, boosting the production of Israeli Arabs, improving the quality of education and employment, massive investments in educational and physical infrastructure, expanding the export base and directing it to new markets, slowing down the growth of the defense budget, and removing bureaucratic obstacles.

The kibbutzim reinvented themselves and have again turned into an economic asset and a stalwart growth accelerator; the discovery of natural gas by businessman Yitzhak Tshuva frees Israel of the dependency on coal and dramatically brings down the cost of electricity production; the Arab sector is witnessing an unprecedented entrepreneurial business revolution, and Israeli software companies are taking over Africa.

Israel’s economic rather than military wings are spread and flying independently.

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