As reported by Intesa Sanpaolo Studies and Research Department, in 2016 GDP growth accelerated to 4%, from 2,6% in 2015: the boost came from domestic demand, where consumption (+6,1%) benefited from low inflation, tax cuts, increases wages and low unemployment. After a few years of stagnation, following the completion of the plants for the exploitation of gas fields discovered in the Mediterranean, investments in turn achieved a significant recovery (+11,9%), supported by cuts in the corporate incomes, the development of high-tech sectors, mortgage incentives for house purchase and advance purchases of vehicles (land transport vehicles grew by 55% in 2016) in the face of higher taxes high as of 2017.
However, last year foreign trade largely subtracted from GDP reflecting a growth in imports (+9,4) equal to almost four times that of exports (+2,5%). As regards the main sectors of the economy, last year the boost to GDP came mainly from mining (23,3%), construction (+13,9%), sales services (+26,7%) and transportation (+13,7%). In the first half of 2017, the Israeli economy, despite the return of consumption (2,8%) and investments (3,5%), maintained a pace (+3,9%) in line with last year.
Growth also benefited from the boost in foreign trade thanks to the acceleration of exports of goods and services and the simultaneous slowdown in imports. According to analysts, in the second half of the year the unfavorable base effect and the lower thrust of government incentives to demand will lead to a slowdown in GDP dynamics: the Central Bank GDP dynamics are expected below 3% which will bring annual growth to 3,4%.
And as regards 2018, the Monetary Authority sees a GDP trend in line with that of this year, mainly supported by investments in the IT hardware and hydrocarbon sectors. However, according to the International Monetary Fund, in the medium/long term, potential growth could slow down to 3% due to a drop in productivity determined by demographic factors.
Without to forget a highly automated and advanced agricultural sector in the fields of crop experimentation and irrigation: while importing a large part of its food needs, the country is at the same time an important exporter of citrus fruits and agricultural products grown in greenhouses. Hence, since it is a small and very open economy, Israel's exports depend in particular on world demand for products in which the economy specializes, especially the high technology of electronics, information technology, communications, pharmaceuticals and high-tech services.
Last year 49%, half of the manufactured products exported were goods with a high scientific or technological content such as pharmaceuticals and electronic instruments. In 2016, exports of high-tech manufactured goods amounted to 21 billion dollars (6,7% of GDP): of these, almost a third goes to Europe, a quarter each to the USA and the Far East. Israel mainly imports energy and non-energy raw materials (almost 70% of the total), capital goods and consumer goods (about 15% each). Trade relations with Middle Eastern markets are negligible.
Also last year, M&A operations, totaling 16,8 billion, involved 7,5 billion software and IT companies and 3,9 billion pharmaceuticals. The concentration of high-tech companies extends mainly around Tel Aviv, with other smaller settlements in the cities of Ra'anana, Petah Tikva, Herzliya, Netanya, Rehovot Rishon Le Zion. The World Economic Forum in its Global Competitiveness Report 2017-18 on competitiveness ranks Israel 16th out of 137 countries on the general conditions of competitiveness but 3rd for the sub-category of innovation capacity and 7th for that of technological development.
