Israeli economy: victim of its own success?

Who would have believed that the shekel would turn into one of the most powerful currencies in the world.

Thus spoke PM Netanyahu this week. Over the past 12 months, the Israeli currency has appreciated 6% against the dollar and double that against the Euro. Thus, exports have become that more expensive to zones that import over 70% of Israel’s tradeable items. Can that last?

The head of the Israeli Manufacturers’ Association summed up the delicate situation very well, when he observed:  “Over the past three quarters, exports have weakened and job creation has come to a halt. We are very concerned about activity in 2011 and are urging decision makers to take the necessary steps to strengthen the dollar.”

As with most things in the Middle East, nothing is simple. The problem has been caused by success. The fundamentals of the Israeli economy are very good.

This week’s press release from the Bank of Israel is full of glowing predictions for 2011. Unemployment down to 6%. The debt ratio falling below 80%. Growth is set for just under 4%.

Here’s a specific example of what I mean. The Israel tourism industry in 2010 broke the 3 million visitors figure for the first time. As for 2011, the hope is to host 4 million overseas guests, which will add another 15,000 jobs to the sector.

The 2011 budget for capital investment and infrastructure development stands at NIS 375 million, of which about NIS 205 million will be allocated to encouraging investment in tourism and increasing the hotel supply: construction, expansion and conversion of hotels mainly in Jerusalem, around the Sea of Galilee and the Galilee region. A further 3000 hotel rooms are expected to open around the country by the end of 2011. About NIS 170 million will be allocated to infrastructure development including the development of tourist cities, trails, national parks, boardwalks etc.

As with more traditional parts of industry, many of the multinational tourism groups are realising that Israel offers potential rich pickings and becomming involved.

2011 offers many challenges to the Israeli economy; achieving a competitive rate of exchange, finding a suitable tax base for an emerging energy industry, a stock market that shows no sign of cooling down, etc. Above all, the bureaucrats will need to ensure that those often-praised fundamentals remain true and transparent.

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2 Comments on “Israeli economy: victim of its own success?”

  1. […] This post was mentioned on Twitter by Israel Maven, michaelhoresh. michaelhoresh said: Israel's economy facing tough challenges in 2011: […]

  2. Don D Says:

    Israel proves that small nation with great idea can achieve everything!

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