Protesters, economic boom and world recession – Israel’s economy Agust 2011

On Monday August 8th 2011, as Wall Street and European markets crashed 5%, the Tel Aviv market rose 1.5%. Less than 36 hours previously, over 300,000 citizens – around 5% of the population – had taken to the streets, demanding “social justice”. Yet, figures just released show new car sales for 2011 approaching an all-time high!

So what is the true state of Israel’s economy? More importantly, if there is to be a global recession, what will happen in the Holy Land?

Let’s start with some basic, boring stats. All agencies are still reporting around 4% growth for 2011 and 2012. So even if that was to be cut by half, Israel will still be in a good position compared to most fellow members of the OECD. Unemployment is at a record low of under 6%. Foreign direct investment is there for all to see. Even the bubble in the housing market is showing signs of bursting.

On the other hand, new mortgages were down 25% in July, a month when they normally rise. Tax collection has fallen off during the summer. The average wage is 1.2% down. All symptoms of the next recession?

In addition, there is a forthcoming potential strain on the Israeli Treasury. Israel’s own Facebook social protest has risen out of virtual nowhere to a powerful movement for change in just four weeks. Most of the list of the demands will cost substantial amounts of money. However, as the demonstrations have received massive street support, the government will be struggling not to fork out at least some unplanned expenditure.

So for all of Israel’s many economic triumphs in the past two decades, the leaders have trampled on the middle classes, and got away with it, until now. But don’t forget; many of these same people have also received an improved quality of living, despite their complaints.

So, what next? If America and European political leaders continue to blither around with their debt issues, then few countries can avoid some fallout. Israel has good fundamentals – S&P has maintained its credit rating fairly high – and so starts this difficult period from a solid position.

In management, you are taught to fix problems by looking at success stories and learning from those experiences. Is there a case to apply that model to international economics? Time for world leaders to visit Israel and not just to complain about its policies?

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