Israeli Economy Growing, But European Crisis Raises Concerns

May 26, 2010

Economic growth, as measured by gross domestic product (GDP), rose by 3.3% in the first quarter of 2010 according to National Accounts figures cited by the Bank, and employment-related issues continued to improve. However, the European debt crisis is raising concerns that could lead to problems for the Israeli economy.

The Bank noted that the nations in Europe under “market pressure” constitute just 5% of Israel’s export market, a “relatively small” share. However, the situation could worsen, with the Bank saying that “if the crisis spreads to the whole of the EU [European Union], which constitutes an important market for Israel's exports (28% of exports), it could have a significant impact on Israel's exports.”

Said the Bank, “The level of uncertainty increased this month against the background of concern that the debt crises in some European countries would cast a cloud over the recovery in the advanced economies [in the world], and would thus have a negative impact on economic activity in Israel.” The Israeli stock market already has taken a hit. In roughly one month’s time the Tel Aviv 25 index declined by 7% and the Tel Aviv 100 index by 8%, which the Bank noted was part of a downward trend in major stock markets around the world.   

One area outside the European crisis that will merit attention is housing prices in Israel, which rose 21.9% between March 2009 and February 2010. One reason for the price increase is the low interest rate. The Bank statement said the Supervisor of Banks issued draft guidelines to banks on housing loans and credit “in light of the continued rapid increase in housing prices and the steep rise in housing credit…and in order to moderate these trends and to support financial stability.”

The Bank also unveiled some more good news for Israel, pointing out that the expectation for the domestic budget deficit is that the 2010 deficit “will be markedly lower than the ceiling specified in the budget.”

Posted on May 26, 2010

Source: (By Joshua Spurlock, BFP Israel Mosaic Radio, May 25, 2010)

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