Israel’s Economy in 2018: Analysis and Forecast

Brief Overview – What Makes the Israeli Economy so Powerfull

With an ever-increasing number of foreign investments into Israel and Israeli companies sold for $23bn last year the Israeli economy seems to be in terrific shape. While the rest of the world is barely dragging its feet from traditional industries to high-tech, Israel have it all figured out from back in the day. Even before high-tech was named high-tech, Israel established some of the world’s finest R&D companies in the field of security and pharmaceutical.

In the 1990’s, Israel has conceived some of the most popular companies online at the time, like ICQ (Mirabilis) and between 1998-2000 more than 50 Israel companies went on an IPO.The economy further developed in the decade between 2001-2010, with more successful high tech companies, more patents, more innovation and bigger funding. There were plenty of exits. most notably everyone’s favourite navigation software Waze (sold to Google).

Interesting enough, Israel sustained through the global sub-prime crisis in 2008, and this is when the economy really bought itself a name as one of the world’s finest and most stable economies. Both the USA and Europe were hit severely and offered nothing remotely resembling of stability, while the Israeli real estate was flourishing and taxes were exempted from those immigrating, leading to massive inflow of cash into Israel by both private clients and corporations. Money transfers to Israeli Shekels were already quite popular in the USA and the UK where there are large Jewish communities but Chinese investments were unheard of before 2008 (and nowadays Israeli is the promised land for Chinese investments).

Brief Overview – What Makes the Israeli Economy Prone to Crisis

While all of the above is said and done to make the Israeli economy attractive for overseas investors and make the Israeli Shekel one of the most powerful currencies in the world over the past few years, there are many risks to Israel’s economy.

In fact, there are a lot of risks to the sustainability of Israel as a sovereign country with any economy at all. At the time of writing these lines, there is some severe military tension between Israel and Iran, one of the strongest nations in the world in terms of military force. At the same time, winds of wars are waging from the southern border, in Palestine, and the northern border with Lebanon and Syria where Hezbolla is at.  The bottom line is that that is an existential threat to the State of Israel from all of its neighboring countries, and that a country so heavily invested into self-protection may end up behind “normalized” countries with no direct conflicts.

What Lies Ahead for Israel’s Economy – a Forecast

The Israeli economy has been successful in spite of its many challenges along the way. A country built up from the ground by the survivors of the Holocaust has achieved greatness in a very short period of time. Those who side with the current leadership are even more confident of the exciting prospects waiting to happen in the future, but I am not so convinced. There is a lot more tension in the air than before. The current dialogue, or lack of, between leaders, shows that war is coming, but more importantly, the Israeli democracy is weakening. The type of ministers PM Netanyahu has gathered around him are glorified jokers with no expertise at what they do, so they focus on warmongering, preaching and hatred towards minorities. Looking at the actions of the current leadership it is difficult to see a situation in which Israel takes a 180 turn into peacefulness, in fact, war or outcry are almost unavoidable at this stage.

For those  reasons I would treat the Israeli economy with caution. There is a strong foundation there, but 2018 might not be the right timing to invest in Israel.

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