In contrast to most of the developed countries, which went into an economic tailspin after the real estate bubble burst, followed by the 2008 financial crisis, Israel emerged from the global crisis with strong annual growth, a stable financial system, and impressive export figures.
The situation has now changed completely, at least according to an analysis published on the Bloomberg website. "With exports tumbling and annualized inflation stuck below zero for 20 months, growth in 2015 slowed to just over 2% from 5% or more five years ago," Bloomberg states.
First quarter growth was only 0.8%, far below the analysts' expectations of 2.6%. "Lackluster expansion may be the new normal," Ministry of Finance chief economist Yoel Naveh told Bloomberg, citing low Arab and ultra-Orthodox Jewish participation in the workforce, a labor shortage in high-tech, and weaker demand for Israeli exports.
Bloomberg says that several factors are responsible for low growth in Israel. The first is the budget: Israel directs a large part of its budget to the Ministry of Defense, but lags behind other Organization for Economic Cooperation and Development (OECD) member countries in investments in education, health, and transportation.
Another challenge facing the Israeli economy is declining productivity. Known for its cutting edge technology, Israel is liable to encounter problems in the future. Commenting on the Arab and haredi (ultra-Orthodox) sectors, Bloomberg quotes Shoresh Institution economist Dan Ben-David as saying that half of all Israeli first-graders won’t be educated for a modern workforce because ultra-Orthodox Jewish boys’ schools focus on religious texts and Arab schools are underfunded and poorly staffed.
Bloomberg also mentions the strengthening of the shekel against the basket of currencies as one of the main challenges facing Israel. The current account surplus, which is usually a positive factor for a country, and the discovery of natural gas have led to an ongoing appreciation of the Israeli currency, which has a negative impact on exports.
Published by Globes [online], Israel business news - www.globes-online.com - on May 25, 2016
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