Wednesday, February 16, 2011

Israeli Economy Growing Fast-But Average Income Doesn't Grow Quite As Fast

Israel's GDP in Q4 2010 grew by 1.9% (7.8% at an annualized rate) compared to the previous quarter and 5.6% compared to a year earlier.

This is very impressive considering that unlike most other rapidly growing economy Israel didn't experience a recession in 2009 (only a slowdown from previously high growth levels) and so its growth doesn't contain as big element of cyclical rebound as other economies with relatively high growth like Sweden, Estonia, Finland and Germany.

It is particularly the high tech sector that drives growth, with for example Intel investing and expanding their operations in Israel significantly.

However, though by any measure Israel's performance in recent years have been impressive, in part due to the free market reforms that have been implemented, it should be noted that average income grows slower than GDP due to Israel's high population growth.

As a result, while Israel's GDP growth during the latest year has been significantly higher than Germany's (5.6% versus 4%), its per capita growth has been somewhat lower because Israel's population grows by 1.8% per year while Germany's population is shrinking.