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December 24, 2020 7:04 am

Israel’s Economy in Defiance of COVID-19

avatar by Yoram Ettinger


The lobby of Tel Aviv’s stock exchange. Photo: Wikimedia Commons.

Despite COVID-19, Israel’s economy remains strong. According to Dr. Adam Reuter, the chairman and founder of an Israeli financial-risk management firm, and the co-author of Israel — Island of Success:

1. A direct correlation exists between the level of the Nasdaq, on the one hand, and the strength of Israel’s shekel, on the other. The higher the level of the Nasdaq, the more US funds that are available for investment in Israel’s high-tech sector. Israel has become a unique source of innovative research and development — as well as an engine of export enhancement — for major US high-tech companies.

2. Israel’s exports are expected to approach an all-time high of $132BN in 2020 — while imports have declined substantially, due to the surge of the high-tech sector. Ten percent of Israel’s working manpower is directly employed by the high-tech sector (double the level employed in other OECD countries).

3. Direct foreign investment in Israel in 2020 is 20% higher than 2019 — approaching $25BN, of which $9.5BN-$10BN are high-tech investments (20% higher than 2019). Since 2000, US businesses and individuals have invested over $100BN in Israel’s high-tech sector.

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4. Israel’s foreign exchange reserves, as a percentage of GDP, are third among OECD countries. Israel’s total foreign exchange reserves are at an all-time high at $170BN, of which $17BN was acquired in 2020. Notwithstanding the unprecedented dollar acquisition by the Bank of Israel — but due to the unprecedented level of foreign investment — Israel’s shekel is gaining strength: 3.81 per US dollar on March 17, 2020 — and still 3.23 on December 22, 2020.

5. Israel’s national debt-to-GDP ratio was 60% before the arrival of COVID-19, compared to 109% for the US. In December 2020, it is 76%, compared to 131% for the US.

6. Israel’s public savings in 2020 have increased by 1.4% compared to 2019.

7. The IMF’s outlook report for 2025 is as follows: Israel — 4% GDP growth ($500BN annual GDP); Turkey, Colombia, Latvia, and Estonia — 3%; Ireland and Australia — 2.5%; OECD average — 2.1%; Sweden — 2%; US — 1.75%; France — 1.7%; Canada — 1.7%; Switzerland — 1.3%; and Germany — 1.2%.

8. Standard & Poor’s (S&P) international rating agency reaffirmed Israel’s credit rating of a stable AA-, despite the impact of COVID-19, the growing budget deficit, and domestic political instability — all due to Israel’s thriving high-tech industries, strong external accounts, the deep pool of domestic savings, the effects of the recent peace accords, and the expansion of natural gas investment and export (e.g., Chevron’s acquisition of Nobel Energy’s offshore assets in the Eastern Mediterranean, which has geopolitical and economic implications).

Fitch and Moody’s international rating companies sustained their stable A+ and stable A1 credit ratings for Israel, respectively.

9. Israel’s peace treaties with the United Arab Emirates and Bahrain are expected to add 0.25% ($1BN) to Israel’s GDP through agricultural and high-tech export, high-tech investment, oil imports, and mutual tourism.

Yoram Ettinger is a scholar and former Israeli ambassador.

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