During Israel’s brief brush with peace in the mid-1990s, its economy nearly doubled in size, proving that political stability and security in this troubled corner of the world can spawn an economic whirlwind. While daunting obstacles to peace and prosperity remain, Israel will be in a much better position to build on the economic advances of the last decade if current proposals for resolving the Israeli/Palestinian conflict come to fruition.
Israeli Prime Minister Ariel Sharon’s politically risky plan to pull out of the occupied Gaza Strip later this year, coupled with the death of Yasser Arafat and the recent election of Palestinian President Mahmoud Abbas, is an encouraging development, but offers no guarantees of success. Furthermore, the long-term peace needed to sustain economic growth may not be possible if financial gains do not benefit Israelis and Palestinians alike.
Yet, in this most unstable of environments, recent small steps toward peace have been enough to reignite the Israeli economy, offering investors the potential for very strong returns. In 2004, Israel’s GDP grew by 4.2 percent, a great improvement over the 1.3 percent registered in 2003 and 2002’s limp 0.7 percent. The Tel Aviv Stock Exchange (TASE) rose 19 percent, more than double the gain in the U.S. Nasdaq market and almost five times more than the Dow Jones Industrial Average. The 120 Israeli companies listed on Nasdaq saw their stocks jump an average of 10 percent. Back home, Israelis saw direct foreign investment surge 10 percent to $6.08 billion, while inflation hovered at an enviable 1.1 percent.
Tourism, the most volatile barometer of global confidence, jumped 49 percent last year to 1.4 million visitors, the most since 2000. Despite economic uncertainty in the United States, economists expect 2005 to be a watershed year for tourism.
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