Can Israel’s economy weather the Euro crisis?

Proctor & Gamble believe that Israel is a premier “start up nation”. After all, “Israel is the biggest destination for global venture capital per capita“. In parallel, the recent discovery of commercial gas reserves means that :

Israel could meet its own electricity needs in the future and possibly become a net exporter to a gas-thirsty region. This would bring economic and political benefits as well as regional clout at a time when Israel’s regional standing is more uncertain than it has been for decades.

Israel’s economy is due to grow at around 3% in 2012. Unemployment is still falling, for now. Tourism figures continue to soar. All is rosy. And yet…..

The mandarins in the Bank of Israel and the Finance Ministry, who sit less than half a mile away from each other in Jerusalem, have known for over a year that they cannot ignore the fallout from Greece, Spain et al. While Israel’s banking exposure to these countries has always been minimal, around a third of the country’s trade involves the Euro zone and the UK.

For some analysts the credit crunch has already arrived. Yes, the Bank of Israel is demanding higher capital adequacy ratios. some of my clients are finding bank managers less receptive than in the past.

And today’s newspapers are full of rumours of higher VAT and corporation tax to be imposed as early as mid 2012. This will be combined with cuts in budgets of the public sector.

On the one hand this is not an encouraging scenario. However, there are two takeaways that should give the local decision makers a lot of hope.

First, if Europe does try to infect her neighbours with its cold, then Israel can face the attack from a position of strength. Second, by taking preparatory measures now to ensure that the Euro problem can we weathered, Israel will be able to use its new raw materials to generate greater economic wealth in the future.

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2 Comments on “Can Israel’s economy weather the Euro crisis?”

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