Israeli economy flexes its muscle as shekel is deemed world’s 2nd-strongest currency
The German financial services giant Deutsche Bank last week ranked the Israeli shekel as the world’s second-strongest currency, bolstering the broader outlook on the Jewish state’s economy…writes Adam Abrams/JNS.org.
Israeli shekel bills. Credit: Nati Shohat/Flash90.
“The strength of the shekel reflects the strength of Israel’s current economic position,” Leo Leiderman—a professor of comparative economics at Tel Aviv University and the chief economic adviser for Bank Hapoalim, Israel’s largest bank—told JNS.org, adding that he expects the shekel “to continue showing relative strength.”
During the past year, the shekel has appreciated 6.1 percent against the currencies of Israel’s main trading partners, including the U.S. dollar, British pound, euro and yen, according to Deutsche Bank’s strategic foreign currency analyst Dr. Gautam Kalani. Only the Chinese yuan is stronger than the shekel, Deutsche Bank said.
The shekel’s strength results partially from Israel holding one of the largest reserves of foreign currency in the world, serving to reduce the volatility of the Jewish state’s native currency.
Israel’s central bank, the Bank of Israel, announced record-breaking foreign reserve holdings of $111 billion at the end of September. In April, a report by Bank of America Merrill Lynch noted that the Bank of Israel was “defying gravity” by checking the appreciation of the shekel against the U.S. dollar, which hit a three-year low against the Israeli currency this summer.
Imports and exports
Leiderman explained that Israel “exhibits a surplus in the current account of the balance of payments—that is, excess of exports of goods and services over imports of these. Obviously, a strong currency means more challenges for our exporters, and some easing of prices for imported goods and services.”
Yet despite the challenges that the shekel’s strength might pose for local manufacturers and exporters, Israel’s exports actually rose 6 percent—to $50 billion—during the first half of 2017, according to the Israel Export and International Cooperation Institute.
Leiderman said the jump in exports was driven by rapid growth in high-tech services and incoming tourism.
“The economy benefits from capital inflows from abroad, especially in the high-tech sector. This year, we expect a total of 3.5 million incoming tourists, which is a record-high figure in Israel’s history,” he said.
Israeli exports of services totaled $21 billion in the first half of this year, boosted by the rising trend in exports of computer and software services—which grew 12 percent, to $6.8 billion.
Exports of tourist services were up 16 percent, to $3.2 billion, in the same period, and exports in industrial sections—including drugs, chemicals, refined oil products and electronic components—grew 5 percent.
“Increasing exports is a strategic goal of the Ministry of the Economy and Industry, because the export industries feature high productivity,” Israeli Economy Minister Eli Cohen said in August, Globes reported. “We are continuing our efforts to attract international companies. With the help of incentives for exporters, we will cross the $100 billion mark, which is our annual export target.”
A top economic competitor
Besides being recognized for its strong local currency, Israel is also considered home to one of the world’s most competitive, innovative and stable economies.
“When looking at the OECD (Organisation for Economic Co-operation and Development) countries, we are towards the top of the list, almost at the head, and this is very important,” Israeli Prime Minister Benjamin Netanyahu said in February. “This creates jobs, raises wages and is good for the citizens of Israel.”
The Jewish state is currently ranked first in the world in research and development (R&D) and venture capital investments as a percentage of gross domestic product, as more than 600 new start-up companies are launched in the country every year. Israel is also home to more than 300 R&D centers belonging to tech giants such as Facebook, Microsoft, Intel, Google, IBM and Apple.
Israel is ranked second on the World Economic Forum’s (WEF) innovation index and 16th on its Global Competitiveness Report. Israel moved up eight positions from last year on the WEF competitiveness index, marking the first time that the country was ranked among the list’s top 20 nations.
According to the WEF, Israel this year maintained its position as one of the world’s three most innovative countries, in line with Jewish state’s longstanding reputation as the “start-up nation.”
Israel also cracked the top 10 on the 2017 Bloomberg Innovation Index, which rates the level of innovation in a nation’s economy by measuring its spending on R&D as well as its number of publicly traded high-tech companies.
