Israel is wealthy, but costly

gap, mall, shopping, retail
Amiram Barkat

Israel's high place in Forbes' GDP per capita ranking is good news, but far from being the whole story.

"A huge achievement for our economic policy for all citizens of Israel," is how Prime Minister Benjamin Netanyahu chose yesterday to present data showing Israel's advancement to nineteenth place worldwide for per capita GDP in 2020 (published by Forbes Israel on the basis of IMF data). Is there a basis for Netanyahu's boast?

What weighs on Israel's high position in the per capita GDP table is its even higher place in the cost of living table. Israel is eighth in the world for price levels, according to the Numbeo website, which specializes in international price comparisons.

Besides that, even if Israel's progress in the ranking is good news, it must not be forgotten that behind the average number hide two quite different stories of Israel's economy: against a prosperous technology sector that does not account for more than 10% of the workforce is a swollen public sector and a social periphery that has not succeeded in integrating into the technological economic miracle. The demographic trends indicate that Israel will find it harder and harder to maintain its place in the wealth ranking unless there is a real switch.

GDP per capita is indeed an important statistic, enabling one to learn not only about a country's level of productivity but also about its wealth. The higher a country's GDP per capita, the more it can afford its citizens a high level of security, and good, advanced health and education systems

The leading country for GDP per capita is tiny Luxembourg, with an annual figure of $117,000. After it comes Singapore, with $101,000, and Ireland, with $90,000 per capita, according to OECD data for 2019.

There is therefore no doubt that Israel's advancement up the GDP per capita ladder is good news. On the one hand, it is not such a surprise, given that Israel was relatively lightly affected by the coronavirus pandemic, and its GDP declined less last year than that of other Western countries.

On the other hand, the rate of population growth in Israel is the highest in the West (and among the highest in the world), which makes it hard for Israel to close the gap in GDP per capita with the developed countries.

The ranking on which Netanyahu based his remarks in is nominal terms. A more correct comparison of GDP per capita would take into account Israelis' low purchasing power. Prices in Israel are much higher than in other countries: according to Numbeo, the cost of living in Israel is more than 20% higher than in the US, meaning that a dollar buys less in Israel than it does in the US.

If purchasing power is factored in, Israel reaches 23rd place for GDP per capita. The most up to date figures that the Central Bureau of Statistics has are for 2019. Only in August will figures for 2020 become available.,

GDP per capita in Israel is around $42,000, putting Israel in the middle, between Japan and Cyprus. Israel is still 10% behind the average for developed countries, which is around $46,000.

The main thrust of economic policy in Israel in the coming years needs to be directed at narrowing this gap. The expected growth in the haredi (ultra-Orthodox Jewish) population, which has not so far succeeded in integrating into professions with high pay and productivity, will make Israel's challenge much harder. Against this background, Netanyahu's boast was not only exaggerated, but also made much too soon.

Published by Globes, Israel business news - en.globes.co.il - on April 28, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018