Economic and Political Overview

flag Israel Israel: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The Israeli economy has recorded one of the best performances of the OECD countries in recent years, mainly due to an increase in the working-age population and the participation rate. However, after reaching 3.4% of GDP in 2019, growth was abruptly halted and turned negative in 2020 (-2.2%) due to the outbreak of the Covid-19 pandemic. According to IMF estimates, GDP growth picked up to 7.1% in 2021, supported by relaxed restrictions measures and robust exports. Economic growth should remain vigorous in 2022 (4.1% of GDP) and 2023 (3.6%) (IMF), supported by a recovery in tourism, improved economic ties with Gulf neighbours and a booming technology industry (Focus Economics). In the long term, the increase in the proportion of low-skilled Har (ultra-Orthodox Haredim) and Israeli Arab communities and of the working population (expected to fall from 25% to 40% by 2045) are potential obstacles to growth.

In 2021, Israel’s economy rebounded strongly despite the forth wave of the COVID-19 pandemic. In response to the new surge in infections, the government tightened some restrictions on gatherings and launched a booster vaccination campaign in August. In the light of the recovery, policy support such as certain unemployment benefits and grants to hard-hit businesses were withdrawn (OECD). The economic crisis caused by the Covid-19 pandemic had a major impact on the country's fiscal situation. According to the IMF estimates, the budget deficit reached -9.8% GDP in 2020, and remained high in 2021 (-6.3% GDP). It is expected to decrease to -4% GDP in 2022 and -3.6% GDP in 2023. Similarly, public debt increased sharply since the pandemic, reaching 73.2% GDP in 2021, and is forecast to remain at this level in 2022 (73.2%) and 2023 (73.1%). After turning negative in 2020 (-0.6%), inflation increased in 2021 due to rising energy, food and housing expenditure prices (OECD). Estimated at 1.4% in 2021, it is expected to reach 1.8% in 2022 and 1.6% in 2023, within the central bank’s target range (IMF). In August 2021, the government adopted an ambitious reform programme aimed at boosting infrastructure investment, reforming the vocational system and improving business environment, in order to increase productivity to support a sustainable growth (OECD). Investing in pre-school education to improve skills and make growth more inclusive (OECD) and ensuring the social and economic integration of Arab and Haredim minorities (IMF) are some of the challenges faced by the country.

Israel has one of the highest living standards in the region. The average salary in Israel is similar to average salaries in Europe. However, 25% of Israelis live in poverty and inequality is relatively high, which explains the frequent social protests. Furthermore, households suffer from high real estate prices and costs of living. The unemployment rate has risen due to the global crisis caused by the Covid-19 pandemic and will reach 5.1% in 2021. According to IMF estimates, the unemployment rate will decrease to 4.6% in 2022 and 4.3% in 2023.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 397.94407.10e467.53501.41529.32
GDP (Constant Prices, Annual % Change) 3.8-2.2e7.14.13.6
GDP per Capita (USD) 43,966e44,181e49,84052,50454,445
General Government Balance (in % of GDP) -4.1-9.8e-6.3-4.0-3.6
General Government Gross Debt (in % of GDP) 59.572.0e73.273.273.1
Inflation Rate (%) 0.8-0.6e1.53.52.0
Unemployment Rate (% of the Labour Force) 3.84.3e5.14.64.3
Current Account (billions USD) 13.3322.1420.8419.1418.89
Current Account (in % of GDP) 3.45.44.53.83.6

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

 

Main Sectors of Industry

Israel has a diversified and technologically advanced economy. The agricultural sector employs 1% of the active population while accounting for 1.2% of GDP (World Bank, 2020). The country's main crops are fruits and vegetables, cereals, wine, cattle farming. It has become a leading agri-tech country, “greening” the desert to grow most of the exported food. Israel is almost completely dependent on imports to meet its supply of food products. However, throughout the COVID-19 crisis, there were no reports indicating a lack of inputs (USDA Foreign Agricultural Service).

Israeli industry excels in the production of chemical products (Israel specialises in generic medicines), plastics and high-tech (aeronautics, electronics, telecommunications, software, biotechnologies, etc.). Industry as a whole comprises 18.6% of GDP and employs 17% of the workforce (World Bank, 2020). Numerous companies, particularly those that produce state-of-the-art technology, have benefited from their ability to secure funding from Wall Street and other international financial centres. Israel ranks second, after Canada, in terms of the number of companies registered on American stock markets. Many leading international hi-tech companies have established R&D centers in Israel. Companies such as Intel, Microsoft, Cisco, IBM and Apple chose Israel as the site for their first development centers outside of the United States. Other important sectors of activity include diamond cutting, textiles and tourism. Despite the COVID-19 pandemic, Israeli tech sector recorded a strong growth in 2021, raising record levels of investment for a second consecutive year (The Associated Press).

The majority of the workforce (82%) is employed in the tertiary sector, which accounts for 71.4% of GDP. Tourism remains significant despite the Israeli-Palestinian conflict, with a record of 4.55 million tourist arrivals in 2019 (+10.6 year-on-year), generating approximately USD 6.3 billion in revenues. The tourism industry was one of the industries most affected by the COVID-19 crisis. Less than 830,000 tourists entered Israel during 2020, a decline of 81.7% from the previous year. Between January and September 2021, only 243,600 tourists visited the country (Central Bureau of Statistics).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 0.9 17.2 81.9
Value Added (in % of GDP) 1.1 18.5 71.2
Value Added (Annual % Change) 1.9 2.8 3.4

Source: World Bank, Latest available data.

 

Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
73,8/100
World Rank:
26
Regional Rank:
2

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.71/10
World Rank:
16/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

Return to top

Political Outline

Current Political Leaders
President: Isaac HERZOG (since 7 July 2021)
Prime minister-designate : Naftali BENNETT (since 13 June 2021)
Next Election Dates
Presidential: 2028
Parliament: 2025
Current Political Context
Embroiled in a political crisis involving the two leaders Netanyahu, head of the Likud party, and Gantz, leader of the Blue and White party, Israel hold four elections in two years. In June 2021, former Prime Minister Benjamin Netanyahu, who dominated the political scene for more than a decade, was unseated by Naftali Bennett. Bennett formed a very disparate coalition, including the participation of an Arab-Israeli party. A rotating system is in place, allowing Bennett to remain as prime minister until August 2023 before being succeeded by Alternate Prime Minister and Foreign Minister Yair Lapid (CIA World Factbook). The government approved the 2021 and 2022 budgets in November, averting snap elections (Focus Economics).

Internationally, apart from persistent tensions with the Palestinian Territories, the risk of conflict with Iran and its allies has increased following the assassination on orders of US President Donald Trump of the powerful Iranian general Ghassem Suleimani on 3 January 2020. In October 2020, Lebanon and Israel, formally still at war after decades of conflict (since 2006), began talks to address a long-running dispute over their maritime border crossing the potentially gas-rich waters of the Mediterranean. Israel also signed normalization agreements with Bahrain, the United Arab Emirates and Morocco in late 2020 and with Sudan in early 2021 (CIA World Factbook).

Main Political Parties
The Israeli political system is based on proportional representation. No party is in a position to assume power independently, so political groups often co-operate and form coalition governments. The main political parties are:
- Likud: National Liberal Party, right-wing, nationalist
- Blue and White: centre, liberal
- Zionist Union: centre-left
- Joint List: consists of Arab parties
- Yesh Atid: centre, liberal
- Kulanu: centre, focuses on economic egalitarianism
Type of State
Israel (official name: State of Israel) is a nation-state based on parliamentary democracy, except in the Palestinian territories.
Executive Power
The President is Head of the State and is elected by the Israeli parliament, the Knesset, for a seven-year term. His/Her role is essentially ceremonial. The President chooses the leader of the party or majority coalition in the Knesset to exercise the functions of the Prime Minister for a four-year term. The Prime Minister is head of the Government and holds the executive power, including the execution of the law and the management of the country's current affairs. The Cabinet is chosen by the Prime Minister before being approved by the Knesset.
Legislative Power
Legislative power is Israel is unicameral. The Knesset (parliament) consists of 120 members, elected by universal suffrage for a four-year term. The Knesset can decide to be dissolved by a simple majority through a vote of no confidence. The Prime Minister cannot dissolve or veto the Knesset. Israeli citizens have significant political rights.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
86/180

Source: World Press Freedom Index, Reporters Without Borders

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
2/7
Civil Liberties:
3/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Return to top

COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Israel please visit the Ministry of Health’s Novel Caronavirus website, as well as the data dashboard provided by the Ministry of Health (in Hebrew).
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in Israel and the current sanitary measures in vigour, please visit the official governmental portal on the Novel Caronavirus. Further information is available on the website of the Ministry of Health.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For the up-to-date information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of the Israel Tax Authority.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Israel on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For information on the economic recovery scheme put in place by the Israeli government to address the impact of the COVID-19 pandemic on the economy, refer to the dedicated page on the website of the Ministry of Finance.
For a general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Israeli government to limit the socio-economic impasraelict of the COVID-19 pandemic, please consult the section dedicated to Israel in the IMF’s Policy Tracker platform.
Support plan for businesses
For information on the local business support scheme established by the Israeli government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, website of the Ministry of Finance. For news and updates, refer to the dedicated section on the official portal Gov.il.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document. You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters
For the up-to-date information on possible support plans for exporters in Israel, if applicable, please consult the website of the Israel Export Institute and that of the Foreign Trade Administration.
 

Any Comment About This Content? Report It to Us.

 

© Export Entreprises SA, All Rights Reserved.
Latest Update: June 2022