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Israel: Booming High-Technology Sector

Key Information
CapitalJerusalem
Population8.3 million
CurrencyIsraeli New Sheqel
Official languageHebrew, Arabic
Form of governmentParliamentary democracy

 

Major Merchandise Exports (% of total, 2017)Major Merchandise Imports (% of total, 2017)
Chemicals & chemical products (excl refining) (26.7%)Machinery & equipment (12.4%)
Electronic communication, medical & scientific equipment (16.3%)Consumer non-durable goods (12.0%)
Polished diamonds (12.7%)Diamonds (gross) (11.2%)
Top Three Export Markets (% of total, 2016*)Top Three Import Markets (% of total, 2016*)
US (33.7%)US (12.4%)
Hong Kong (8.5%)China (9.1%)
UK (7.5%)Switzerland (6.6%)

* Most recent data available
Source: Economist Intelligence Unit

Political Highlights

Israel is a parliamentary democracy. Prime Minister Benjamin Netanyahu promoted his free-market policies and set up a programme to end welfare dependency by requiring people to apply for jobs or training. Israel has been 14 years of continuous GDP growth and lowering debt-to-GDP ratio.

Israel’s Jewish represents 75% of the population while Arabs make up 21%. The government is facing public discontent over wide income inequality. The infrastructure, education, and other public services in Arab areas have long lagged behind those in Jewish areas. In order to improve living standard of Arab minority and narrow gap with its Jewish population, the government has approved a US$3.9 billion five-year spending plan in 2016.

On the diplomatic front, the US, which provides crucial diplomatic and military support, is considered Israel’s most important ally. The country has long been locked in conflict with the Palestinians and its neighbours over ownership of land considered holy by many Jews, Christians and Muslims. The recognition of the Holy city as Israel’s capital and the transferring of its embassy in May 2018 by the US, has increased the tension between Israel, Muslim and Arab nations.

Economic Trend

Economic Indicators2015
2016
2017
2018*
2019^
Nominal GDP (USD bn)299.1317.7349.6377.6401.8
Real GDP growth (%)2.64.03.43.93.3
GDP per capita (USD)35,70037,19038,47040,18041,570
Inflation (%)-0.6-0.50.20.92.1
Budget balance (% of GDP)-2.1-2.2-2.0-2.4-2.5
Current account balance (% of GDP)5.23.83.03.53.9
Government debt (% of GDP)62.660.759.959.658.7

* Estimates  ^ Forecasts
Source: Economist Intelligence Unit

Israel has a market economy with a thriving high-technology sector, which accounts for more than 40% of total manufacturing exports. The development of industries such as life sciences, water technologies, communication, military equipment and semiconductor is supported by heavy investment in technology and a well-educated labour force.

Israel is in an environment of very low inflation and close to a state of full employment. The central bank reduced its benchmark interest rate to a record low of 0.1% in early 2015 and has left it unchanged since then. The unemployment rate also dropped to a 30-year low of 4.0% in December 2017. After two years of deflation, inflation crossed into a positive territory in 2017 but still below the target of 1-3% by the central bank. The central bank expects the wages increase will have an inflationary effect when the decline in commodity price exhausted. So far, Israel has displayed a remarkable resilience to regional political uncertainty and security concerns by integrating in the world economy through trade and capital market channels. Looking ahead, the Israeli economy is expected to rebound, thanks to stronger domestic demand and recovering global activity.

Over the past decade, debt sustainability has substantially improved with government debt-to-GDP ratio declining from a peak of 93% of GDP in 2003 to 59.9% of GDP in 2017. In the meantime, natural gas reserves discovered off Israel's coast have also improved energy security and balance-of-payments prospects. Israel-Palestine conflict and regional instability remains the major threat to the economy.

Chart: Hong Kong total exports to Israel
Chart: Hong Kong total exports to Israel

Hong Kong-Israel Trade

Total exports from Hong Kong to Israel decreased by 11.2% from HK$16,456 million in 2016 to HK$14,617 million in 2017. The top three export categories to Israel were: (1) non-metallic mineral manufactures (-21.2%), (2) telecommunications, audio & video equipment (+31.9%), and (3) electrical machinery, apparatus & appliances, & parts (+17.8%), which represented 86.4% of total exports to Israel.

HKECIC Underwriting Experience

HKECIC imposes no restrictions on covering Israeli buyers. Currently, the insured buyers in Israel range from small and medium sized companies to listed companies. The Corporation recorded three payment difficulty cases and one small claim case from May 2017 to April 2018, involving electronics.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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