Israeli Economy to Grow 4.1% in 2010 as Exports Increase, Government Says

Israel’s economy will probably expand 4.1 percent this year, powered by exports, consumer spending and home construction, the Central Bureau of Statistics said.

Exports, which account for about half of gross domestic product, will climb 13.1 percent, after falling 12.5 percent in 2009, the Jerusalem-based bureau said at a press conference today. Consumer spending will increase 5 percent and residential building by 11.1 percent, it said.

Israel’s rebound from the global financial crisis has been aided by strong domestic spending and a technology industry aimed at global businesses, said Jonathan Katz, a Jerusalem- based economist for HSBC Holdings Plc. The Organization for Economic Cooperation and Development in May forecast average growth of 2.7 percent this year for its 30 members.

“Last year we weren’t hurt as badly as the other developed countries and this year we are continuing to grow faster than the others as well,” said Soli Peleg, head of the bureau’s macroeconomic division.

The bureau’s growth estimate compares with the Bank of Israel’s April forecast of 3.7 percent. Central bank Governor Stanley Fischer said last week that the bank was likely to raise that prediction.

Israel’s economy expanded 0.8 percent in 2009, the bureau said today. Growth this year is expected to be about the same as in 2008 when the economy expanded 4.2 percent. In the four years before the global economic crisis, the economy expanded by between 4.9 percent to 5.7 percent annually.

‘Additional Testimony’

“This serves as an additional testimony to the strength of the Israeli economy,” said Ron Eichel, chief economist at Tel Aviv-based Meitav Securities & Investment Ltd. He said he expects growth to continue at a similar pace in 2011.

Industrial exports are expected to rise 15.2 percent this year while diamond exports may increase 39.2 percent, Peleg said. Tourism services may rise 23 percent, she said.

Israel’s economy began to recover from the global crisis in the second quarter of last year after contracting for the previous six months. Growth unexpectedly accelerated to an annualized 4.7 percent in the second quarter of 2010 as exports climbed 16 percent. Unemployment fell to 6.2 percent in the second quarter.

Uncertainty High

Israeli consumers, unlike their counterparts in the U.S., aren’t heavily in debt and maintain a high savings rate, Katz said. This, together with the Bank of Israel’s expansionary monetary policy, enabled private consumption to remain strong, he said.

Israeli high-technology exports, which make up about 50 percent of industrial sales abroad, are mainly aimed at businesses, which have fared better than consumers during the recession, Katz said. Pharmaceutical companies, like Teva Pharmaceutical Industries Ltd., are also contributing to export growth, he said.

“Globally, the technology sector is expanding rapidly,” Katz said. “Israel is enjoying this rebound.”

Fischer has raised the key interest rate by 1.25 percentage points in the past 12 months as the economy recovers from the impact of the worst global recession since the Great Depression. He left the rate unchanged at 1.75 percent on Aug. 23.

While most indicators point to continued expansion, concern over the sustainability of growth remains, mainly because of the “high degree of uncertainty” in the global economy, the Bank of Israel said in its decision to leave the rate unchanged.

The rebound in the economy has prompted Israel’s benchmark TA-25 stock index to gain over 20 percent in the past year, led by Avner Oil & Gas Ltd. and Delek Drilling LP, two of the partners in the Tamar and Leviathan gas fields off Israel’s coast.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net

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