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The Israeli Economy Rebounds

Israel is bouncing back faster than many OECD countries due to its high vaccination rate and successful tech scene.

Israel Economy

Covid-19 sent economies all over the world on a downward spiral. While Israel was no more immune to this trend than it was to the pandemic itself, the tiny country is recovering at a relatively quick pace. We even reached new milestones. This April's list of the top 20 countries with the highest GDP per capita included Israel for the first time.

If that achievement leaves you scratching your head, you are not alone. International trade plummeted and the budget deficit almost doubled in the past year. Billions were spent on employee benefits and other relief packages.

The country has been through four elections in two years with no stable government on the horizon. Unemployment ballooned from a mere 3.8% to 15%, government deficit from 3.7% to 11.6%, private consumption dropped by 9.5%, and debt-GDP ratio climbed from 60% to 72%!

While all this seems to point to problems of the financial flavor, Israel is doing pretty well. For example, although the gross domestic product shrank by 2.5% in 2020, other OCED countries had it worse. The average OCED country's GDP dropped by 5.5%.

The tech sector is the savior the Israeli economy no one knew it needed. The pandemic initiated a massive digital global movement, calling for innovative technologies. Luckily, Israel specialized in cybersecurity and other high-demand products. Exports increased by 1.9%! High-tech companies could continue fine while employees worked from home. This allowed the sector to ride out frequent lockdowns with greater ease than others.

The speedy vaccination rate was the other factor that put Israel at the forefront of economic recovery. Drops in infection rates allowed businesses to reopen, and unemployment rates are on the decline. Israel looks like it is climbing out of the crisis and current projections have the economy growing by 5% this year.

While things look good now, some experts are skeptical about the future. The past four elections ended in a political stalemate. A lack of budget and structural issues led to a larger-than-desirable budget deficit even before Covid-19. The coronavirus widened income inequality in Israel and around the world. Constant security threats lurk in the background, reigning the possibility for overenthusiasm. These issues will likely be at the forefront of policy-makers minds as they wait with bated breath for a new government to coalesce.


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