Unemployment falls as Israeli economy surges

By Simon Griver, September 7, 2010
Israelis with cash to spare flock to H&M, which opened this year.

Israelis with cash to spare flock to H&M, which opened this year.

Israel's holiday season has been brightened by better-than-expected economic figures.

The Central Bureau of Statistics in Jerusalem reported that the Israeli economy grew by 4.7 per cent on an annualised basis in the second quarter of 2010 - far above expectations of 2.9 per cent - because of the crisis in Europe.

Unemployment fell from 7 per cent in the first quarter of 2010 to 6.2 per cent in the second quarter and is approaching the low-point of 5.9 per cent achieved in the summer of 2008, before the global economic crisis struck.

The improved figures are led by a growth in exports, which rose 33 per cent in the first half of 2010 to $34.5 billion from $25.9 billion in the corresponding period of 2009.

Despite the positive data, Minister of Finance Yuval Steinitz warned against premature optimism. He said, "We must look at what is happening in the developed world and there we see that the storm has not passed. So we must continue being cautious."

Fears of a global double-dip recession aside, Israelis can feel satisfied at the resilience of their economy. It was exactly two years ago, on the eve of Rosh Hashanah, that the global economy collapsed. Yet while the Israeli economy did enter recession in the final quarter of 2008 and first quarter of 2009, it bounced back faster than any other developed economy, recording overall growth of 0.7 per cent in 2009 and 4.1 per cent in the first half of 2010.

Restraint is still the prevailing government policy, and taxes are unlikely to fall. But the Bank of Israel may continue to raise the interest rate above its current 1.75 per cent in order to cool the housing market, which is overheating due to cheap mortgage credit and a lack of new construction.

According to the Bank of Israel, the average price of an Israeli home has increased by over 50 per cent since 2007.

Over the past year alone, housing prices have risen by 21 per cent and the Bank of Israel predicts that house prices will continue to rise, albeit at a more moderate pace.

Other factors boosting Israel's economy include the discovery of huge natural gas reserves in Israel's waters, and the (relative) regional calm even if peace with the Palestinians appears elusive. But with some 45 per cent of Israel's GDP dependent on exports, a second downturn in the Western economy will inevitably hurt the country.

Meanwhile, not all Israelis are sharing in the country's growing prosperity. National Insurance Institute figures show that 783,600 Israeli children - which is 34 per cent of under-18-year-olds, mainly from the Arab and strictly Orthodox Jewish sectors - live below the poverty line. Sadly, this figure has remained constant for the past six years.

Last updated: 10:04am, September 8 2010