Did the OECD get it right about Israel?

Less than two weeks ago, the OECD commented about the Israeli economy:

Israel’s economy passed through the 2008-09 global downturn in relatively good shape but is now suffering alongside others from the continuing effects of the renewed global crisis, and geopolitical tensions have increased. Annualised quarter-on-quarter real GDP growth was 4.7% in the first quarter but had slowed to 3.4% by the third quarter. Much of the slowdown came …. as world trade slowed significantly. The November 2011 OECD Economic Outlook 90 has real GDP growth at 4.7% in 2011 but less than 3% in 2012. 

Compared to most of the rest of the OECD, this is pretty good stuff. However, a downturn is a downturn. Even Australia will feel the germs of Europe’s financial flu.

Now let’s look at some of the positive things in the economy of the Holy Land. Two issues stand out. First, as noted by the OECD, the country has maintained a solid performance in fiscal governance. This will help the Governor of the Bank of Israel if and when he will need to fiddle with interest rates to promote recovery.

Second, Israel is about to become an exporter of energy, specifically gas. When this happens sometime in the next two years, Israel’s economy will begin to take on a very different set of growth stats.

So, what’s the gimmick? How does an economy of only 7.7 million people and surrounded by mega geopolitical problems constantly manage to reinvent itself?

I was reviewing a lecture on utube by Assaf Luxembourg of the Ministry Of Finance. Looking at Israel since the early 1990s, he made two excellent observations. 

  • It is not just that Israel has become a “start up nation”, where hightech plays a big role. Luxembourg’s analysis of Israel’s exports reveals how the country has successfully molded old and new industrial sectors. 
  • In parallel, Israel has done this while absorbing hundreds of thousands of new immigrants, particularly from the former Soviet Union. That means that the GDP per person has continued to move forward.

Bottom line: Israel may not be an economic elixir, but its financial mandarins are developing a model which many others may wish to emulate. And that is why the OECD has not reduced its predictions for Israel to levels associated with most leading European countries.

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4 Comments on “Did the OECD get it right about Israel?”

  1. Joe van Zwaren Says:

    While on the macro level Israel has done well, there is a growing gap between the very rich and the other citizens in Israel. If there would be any way of measuring the social gap, Israel would be found to be doing very poorly. The government seems increasingly at the service of the very rich and doing this at the expense of the rest of the citizens. If this social injustice is not dealt with, Israel’s economic growth may find itself not to be sustainable.


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