Israel?s Economic Growth Highest in Western World

Israel’s economic growth for 2005 was the highest in the western world. Gross domestic product rose by 5.2%, and per capita income jumped by a healthy 3.3%.

Scott Shiloh, | updated: 14:28

With the past year’s economic growth following GDP gains in 2004 of 4.4%, Israel produces nearly 10% more goods and services than it did just two years ago. Though not rising as fast as some developing countries, like those in the Far East, growth in Israel’s GDP now exceeds that of half the world’s industrialized nations.

According to the Central Bureau of Statistics, private consumption rose by 3.3%, and the country’s standard of living increased by 2.1% in 2005.

Israelis’ love of electrical products dampened significantly in 2005, despite the economic boom, with purchases of such items rising by only 1.6%. In 2004, purchases of electrical goods jumped by 12.3%.

Despite the efforts to cut government expenditures, public sector spending rose by 2.7% in 2005. Much of that increase was due to the costs of destroying 25 Jewish communities in Gaza and northern Samaria, and building the security barrier, roughly along the former 1967 border.

Money spent on security also rose substantially in 2005, by 5.5%. This increase is also attributed to the disengagement and the security barrier.

Not surprisingly, foreign investment, one of the major components of economic growth, set a record level this year, peaking at $11.5 billion. The level for 2005 exceeded the previous record set in 2000, just before the Oslo War sent the economy into deep recession. Other reasons for the drop in foreign investment were the high tech bubble, the crises on the Nasdaq securities exchange, and the global economic slowdown.

Foreign investment in Israel has been rising steadily since 2003, when it totaled $5.9 billion. In 2004, that number grew to $7.4 billion, and jumped to $11.5 billion in 2005. In 2002, when the slowdown was at its peak, foreign investment was only $3.4 billion.