IMF praises Israel’s economy -- Time to invest?

January 24, 2007

The International Monetary Fund (IMF) reported that, despite ongoing hostilities and a war against Lebanon, Israel had strong economic policies that have resulted in 5% GDP growth in 2006. Israel has a current account surplus of 5% of GDP, inflation within 1-3%, and a budget deficit of 29% of GDP. For 2007, GDP growth is forecast to be slightly slower, at 4.5%. This is still above the World Bank’s 2007 forecast for world growth of 3.2.%

What the IMF report on Israel’s economy means:
Despite obvious potential for volatility, Israel’s economy attracts strong Foreign Direct Investment (FDI) thanks to steps the government and central bank have taken to increase investor confidence. These include beginning to lower the public debt, signaling the market when the central bank decides to raise interest rates, and successfully stemming inflation.

In addition, Israel has an educated labor force, government incentives for foreign investors, and a high level of R&D investment in technologically innovative startups. The World Economic Forum Global Competitiveness Index ranks Israel at 15, up by 8 places over the previous year.

The IMF suggests that Israel continue to lower the debt, thereby providing a cushion against further instabilities.

Action steps:
Most emerging markets funds include Israeli companies. Check with your financial advisor to see if yours do.

Source: The International Monetary Fund, “Executive Board Article IV Consultation with Israel”, 1/23/07; Investinisrael.gov Web Site;