Foreign Policy Blogs

A Safe Economic Bet?

Even as the European and U.S. economies slid over the past few years, Israel’s financial footing remained fairly stable. In fact, last year protests erupted to lower housing prices in the Gush Dan area, even though prices reflected demand for Tel Aviv residencies.

Today’s paper includes two more items that reflect positive growth in the Israeli economy:

  • Israeli-made chocolate bars are more affordable in the United States than in Israel; and
  • A new report indicates that the Israeli market “‘produced better risk-adjusted returns than all other developed stock markets in the past decade”

Those two items — on the micro and macro levels — suggest the thriving economy continues and has no indications for an about face.

Does all this positive financial news and historical resilience and ingenuity really make Israel a safe economic bet, though?

Absolutely not, for two major reasons.

On the political level, Israeli Prime Minister Binyamin Netanyahu has faced mounting criticism for his handling of the economy, with many Israelis desiring a more populist leader that can increase wages and decrease the costs of consumer goods.

A large portion of the Israeli population has not benefited from the upswing in the Israeli economy, leaving them saddled by higher out-of-pocket costs but little increased revenues.

Further, the improved economy might reflect increased foreign investment in Israel, which contributes to the paradigm of local Israelis lacking spending power in the country’s main metropolises of Tel Aviv and Jerusalem. Similarly, frustration from local Israelis has mounted over the years, as foreign investors purchase apartments in these hubs for use during holidays, creating miniature ghost towns within certain neighborhoods for most of the year.

This external investment has inflated prices outside the comfortable spending limit of average Israelis and leading to the protests on housing costs and  other commodities, thus creating volatility.

Secondly, the security situation in Israel could change overnight, sending the economy into the gutters.

The, for now, rhetoric-war between Israel and Iran has not impacted the Israeli economy, but actual hostilities would assuredly drop housing costs in the major hubs, spike oil prices, and potentially increase costs for goods purchased from others in the region — notably Turkey.

Even increased utilization of Iran proxies Hezbollah and Hamas to launch assaults could devastate the Israeli economy in the north and south, not to mention drastically reduce tourism.

The detrimental impact of hostilities on the Israeli economy has been demonstrated within the last decade, such as during the intifada and the Second Lebanon War. Even after Operation Cast Lead, tensions with Turkey increased and threatened the trade partnership between the two countries.

All that said, though, the Israeli economy has faced tough economic, security and political times in the past and has always been resurrected to shine even brighter.

The tenacity, ingenuity and intellect of Israelis is sure to keep the country’s economy strong long into the future, but recent short-term economic gains could be easily wiped by the exceptionally volatile nature of the country and its predicaments.

 

Author

Ben Moscovitch
Ben Moscovitch

Ben Moscovitch is a Washington D.C.-based political reporter and has covered Congress, homeland security, and health care. He completed an intensive two-year Master's in Middle Eastern History program at Tel Aviv University, where he wrote his thesis on the roots of Palestinian democratic reforms. Ben graduated from Georgetown University with a BA in English Literature. He currently resides in Washington, D.C. Twitter follow: @benmoscovitch

Areas of Focus:
Middle East; Israel-Palestine; Politics

Contact

americasdiplomats_socialmediaasset