Economy of Israel

Israel has a diversified modern economy with substantial government ownership and a rapidly developing high-tech sector. Poor in natural resources, Israel depends on imports of oil, coal, food, uncut diamonds, other production inputs, and military equipment. Its GDP in 1997 reached $98 billion, or $16,800 per person. The major industrial sectors include metal products, electronic and biomedical equipment, processed foods, chemicals, and transport equipment. Israel possesses a substantial service sector and is one of the world's centers for diamond cutting and polishing. It is also a world leader in software development and is a major tourist destination.

Israel's strong commitment to economic development and its talented work force led to economic growth rates during the nation's first two decades that frequently exceeded 10% annually. The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled and inflation reached triple-digit levels. The successful economic stabilization plan implemented in 1985 and the subsequent introduction of market-oriented structural reforms reinvigorated the economy and paved the way for its rapid growth in the 1990s.

Two developments have helped to transform Israel's economy since the beginning of the decade. The first is the wave of Jewish immigration, predominantly from the countries of the former U.S.S.R., that has brought some 841,000 new citizens to Israel. These new immigrants, many of them highly educated, now constitute some 16% of Israel's 5.9 million population. Their successful absorption into Israeli society and its labor force forms a remarkable chapter in Israeli history. The skills brought by the new immigrants and their added demand as consumers have given the Israeli economy a strong upward push.

The second development benefiting the Israeli economy is the Mideast peace process begun at the Madrid conference of October 1991, which led to the signing of accords between Israel and the Palestinians and a peace treaty between Israel and Jordan. The peace process has helped to erode Israel's economic isolation from its neighbors and has begun a process of regional economic integration that will help to stabilize the region. It has also opened up new markets to Israeli exporters farther afield, such as in the rapidly growing countries of East Asia. The peace process has stimulated an unprecedented inflow of foreign investment in Israel, as companies that formerly shunned the Israeli market now see its potential contribution to their global strategies.

Israeli companies, particularly in the high-tech area, have recently enjoyed considerable success raising money on Wall Street and other world financial markets; Israel now ranks second among foreign countries in the number of its companies listed on U.S. stock exchanges.

Economic growth slowed considerably over the last 2 years, to 4.4% in 1996 and only 1.9% in 1997. Per capita income fell slightly in 1997 for the first time in the previous 10 years. The slowdown is generally attributed to setbacks in the peace process, the waning of the beneficial effects of immigration, labor shortages in high-tech industries, tighter fiscal and monetary policy, and the Asian financial crisis which began in late 1997.

The United States is Israel's largest trading partner; two-way trade totaled some $12.6 billion in 1997. The principal U.S. exports to Israel include computers, integrated circuits, aircraft parts and other defense equipment, wheat, and automobiles. Israel's chief exports to the U.S. include diamonds, jewelry, integrated circuits, printing machinery, and telecommunications equipment. The two countries signed a free trade agreement (FTA) in 1985 that progressively eliminated tariffs on most goods traded between the two countries over the following ten years. An agricultural trade accord was signed in November 1996, which addressed the remaining goods not covered in the FTA. Some non-tariff barriers and tariffs on goods remain, however. Israel also has trade and cooperation agreements in place with the European Union and Canada, and is seeking to conclude such agreements with a number of other countries, including Turkey and several countries in Eastern Europe.

GDP: purchasing power parity - $105.4 billion (1999 est.)

GDP - real growth rate: 2.1% (1999 est.)

GDP - per capita: purchasing power parity - $18,300 (1999 est.)

GDP - composition by sector:
agriculture: 2%
industry: 17%
services: 81% (1997 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 2.8%
highest 10%: 26.9% (1992)

Inflation rate (consumer prices): 1.3% (1999 est.)

Labor force: 2.3 million (1997)

Labor force - by occupation: public services 31.2%, manufacturing 20.2%, finance and business 13.1%, commerce 12.8%, construction 7.5%, personal and other services 6.4%, transport, storage, and communications 6.2%, agriculture, forestry, and fishing 2.6% (1996)

Unemployment rate: 9.1% (1999 est.)

Budget:
revenues: $40 billion
expenditures: $42.4 billion, including capital expenditures of $NA (2000 est.)

Industries: food processing, diamond cutting and polishing, textiles and apparel, chemicals, metal products, military equipment, transport equipment, electrical equipment, potash mining, high-technology electronics, tourism

Industrial production growth rate: 5.4% (1996)

Electricity - production: 35.338 billion kWh (1998)

Electricity - production by source:
fossil fuel: 99.9%
hydro: 0.1%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 31.805 billion kWh (1998)

Electricity - exports: 1.061 billion kWh (1998)

Electricity - imports: 2 million kWh (1998)

Agriculture - products: citrus, vegetables, cotton; beef, poultry, dairy products

Exports: $23.5 billion (f.o.b., 1999)

Exports - commodities: machinery and equipment, software, cut diamonds, chemicals, textiles and apparel, agricultural products

Exports - partners: US 32%, UK, Hong Kong, Benelux, Japan, Netherlands (1997)

Imports: $30.6 billion (f.o.b., 1999)

Imports - commodities: raw materials, military equipment, investment goods, rough diamonds, fuels, consumer goods

Imports - partners: US 19%, Benelux 12%, Germany 9%, UK 8%, Italy 7%, Switzerland 6% (1997)

Debt - external: $18.7 billion (1997)

Economic aid - recipient: $1.1 billion from the US (1999)

Currency: 1 new Israeli shekel (NIS) = 100 new agorot

Exchange rates: new Israeli shekels (NIS) per US$1 - 4.2260 (November 1999), 3.8001 (1999), 3.4494 (1997), 3.1917 (1996), 3.0113 (1995)

Fiscal year: calendar year