Israel’s economy – the good and the worrysome

As Israel emerges from the recession, the country’s economic managers are having to cope with a barrage of mixed news.

Let’s start with the positive stuff. Looking at the June – August period, exports soared 25% at an annualised level. Despite, the financial problems of Africa-Israel, one of the country’s largest property groups, the stock market continues to climb. Consumer confidence is also in the ascendance.

What is worrying is the strength of the shekel, in an economy that is dependent upon exports. Dollar denominated trade makes up over half the balance of payments, and this is a currency in trouble around the globe. The profitability of sales outside Israel is taken a major hit.

The Bank of Israel has tried to manage its policy of buying dollars, but this now longer works. The signs are not encouraging, with Morgan Stanley suggesting that the shekel may appreciate a further 10% by the end of 2010. That is bad news for exporters, who have already spent much of the past 12 months cutting out spare fat.

What is interesting is that many analysts still predict 2%+ growth for Israel in 2010. This indicates that the country will either find new markets or that domestic consumption will pick up more of the slack.

The plot thickens.

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