Israeli GDP Surges Up OECD Ranks in 2010

Economists now believe that the Bank of Israel is extremely likely to raise interest rates for March to keep a lid on inflation.

Moti Bassok
Moti Bassok
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Moti Bassok
Moti Bassok

The Israeli economy easily outstripped forecasts in last year's final quarter, achieving annualized growth of a stellar 7.8 percent. While growth rates in other developed countries range from vanishingly small to around 3 percent, Israeli gross domestic product grew 4.5 percent last year, the Central Bureau of Statistics said yesterday.

Economists now believe that the Bank of Israel is extremely likely to raise interest rates for March to keep a lid on inflation.

Yuval SteinitzCredit: Ofer Vaknin

The pace of Israeli growth is the fifth highest among the 34 members of the Organization for Economic Cooperation and Development, which Israel joined last year. Israeli growth outstripped that of the United States, Britain, Japan, Germany, France and most other countries in the group, too. Economic growth by the OECD nations averaged 2.8 percent last year, while the average for continental Europe was even lower - a mere 1.7 percent.

In 2009, the Israeli economy had only grown by a meager 0.8 percent.

Analysts' forecasts hadn't even come close. Most thought fourth-quarter growth would be around 4 percent.

The main impetus for the fourth-quarter leap was strong growth by public consumption, which increased by 6.5 percent, a nearly 19 percent leap in investment in fixed assets, and a 7.1 percent increase in exports (mainly diamonds).

Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz ascribed the jump to sound economic policy, and analysts struggled to explain how they had gotten it so wrong. Just this week, the Bank of Israel itself had predicted fourth-quarter growth of between 4.3 and 4.6 percent.

Amir Kahanovich, chief economist at Clal Finance, said that at first glance, the Central Bureau of Statistics figures look like they're data for China. The figures show the strength of the Israeli business sector, he said - and also the potential for inflationary pressure.

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