The Israeli economy was hit less severely by the crisis than other developed countries as a result of responsible macroeconomic policy in recent years. The Israeli economy's favorable fundamental conditions, and in particular the surplus in the current account of the balance of payments, helped to moderate the effect of the global crisis on economic activity. While the country’s growth rate initially dropped into negative territory in 2009, gross domestic product was 0.7% for 2009, and the central bank expects the rate to climb to 3.5% in 2010, contingent upon an improvement in global trading conditions.

To help safeguard the economy, Israel’s Ministry of Finance and central bank implemented special initiatives including an acceleration program, a pension safety net and a monetary program thereby increasing liquidity, creating new jobs, protecting private savings and promoting continuous growth in Israel.

To help the economy deal with the effects of the global crisis, the Bank of Israel lowered the key lending rate to a record-low of 0.50% in early 2009. The rate cuts were meant to support the economy by lowering the cost of credit, thus contributing to financial stability and partially offsetting the downward pressure on prices, and were in line with other central banks globally. As the Israeli market is heavily dependent on revenues from exports, the expansionary monetary policy also served to stabilize the shekel relative to many of the globally weaker currencies to assist the competitiveness of Israeli products internationally.

In September 2009, however, the Bank of Israel reversed its earlier policy to become the first central bank globally to increase its key lending rate. The central bank decided to increase borrowing costs to help return inflation to within the mandated 1-3% range and strengthen the economy's ability to establish a firm base for the recovery in economic activity, while supporting financial stability.

The central bank had increased short-term lending rates to 1. 5% by June 2010.

To help underpin the economy, the Bank of Israel also started increasing the level of foreign exchange reserves in March 2008 by purchasing about $100 million per business day. By January 2009 the central bank had bought a total of approximately $10 billion, increasing their reserves to about $37 billion. After reaching what it considers the appropriate level of reserves, between $40 billion and $44 billion, the bank continued to use dollar purchases as a tool to control the dollar-shekel rate.

Throughout the years, security events that have occurred in Israel may have lead to uncertainty in the short-run, but in the long-run the strength of the Israeli economy continues to inspire a steady inflow of foreign direct investments. Israel's reputation as a leader of technological innovation is well established internationally and continues to gain ground. The country's macro-economic fundamentals and strict fiscal policy serve as a robust buffer against foreign financial pressures, and ensure the economy's quick recovery. Multinational corporations have been active in Israel for decades and their motivation to invest in the local economy has been unshaken by security issues. Some examples of major foreign investors in Israel are:

• INTEL first invested in Israel in 1974 and then again in 1985, 2004 and 2005. In 2008 Intel opened a new semiconductor production plant in Kiryat Gat, the third such facility in the country.
• Microsoft has operated in Israel since 1989, and after a number of years opened an R&D center in Israel. The software giant opened an additional R&D center in Herzliya in 2008.
• SAP made its initial investment in Israel in 1998, employing 40 people and has increased its investments in Israel a number of times in the past years. Today, 1,000 employees are working in SAP plants across the country.
• Unilever has operated in Israel since 1986, and has continued to increase its investment in Israel ever since.
• Motorola initially invested in Israel in 1964, and since then has made several acquisitions in Israel ¡V in 1986, 1996 and 1997. Motorola- Israel is the firm's first wholly owned subsidiary outside of the United States.

Many major multi-nationals have chosen to run core activities in Israel including: HP, Microsoft, Intel, IBM, Siemens, GE, SAP, Philips, TimeWarner, Sony, Cisco, Google, EBay, Analog Devices, Computer Associates, Berkshire-Hathaway, Applied Materials, Sun Microsystems, 3Com, Motorola, Pfizer, J&J and more.

Israel's greatest natural resource is its skilled workforce - highly motivated, resourceful and independent - they enable Israel to stay ahead of the competition.

Israel has a long history of market-making innovations and breakthroughs in all sectors, including:

• Israel¡s M-Systems was the first to offer Disk-on-Key and Disk-on-Chip flash memory products, and changed the way people store and handle information.
• The Philips Brilliance CT Scanner, developed in Israel, takes a comprehensive picture of a patient in seconds instead of minutes, in the emergency room where every second counts.
• IP Telephony was invented by the two Israelis who founded VocalTec.
• ZIP compression technology was developed by two professors at the Technion, Israel's institute of technology.
• Israel's Given Imaging developed the first ingestible video camera to view the small intestine from the inside, and help doctors diagnose cancer and digestive disorders.
• The technology for the AOL Instant Messenger ICQ was developed in 1996 by four young Israelis. 
•  Israel's Comverse invented voice-mail.
• Revolutionizing present day agricultural techniques, Israel¡¦s Netafim developed modern drip-irrigation technology and Israeli companies continue to lead this field with innovative breakthroughs.

The State of Israel encourages local and foreign investment by offering a wide range of investor incentives and benefits in industry, tourism and real estate according to the Law for the Encouragement of Capital Investment. Eligible companies can benefit from investment grants of up to 24 percent of tangible fixed assets, reduced tax rates, tax exemptions and other tax related benefits. Hi-tech companies can benefit from government R&D funding as well.

Investment grants are only available to companies choosing to locate their plants in Priority Areas A or B. Grants are calculated as a percentage of the original cost of land development and investment in buildings, in machinery and equipment. This cost includes installation and related expenses. Grant rates are 24% in Priority Area A and 10% in Priority Area B. Companies choosing this incentive path should approach the Israel Investment Center to process their request. In addition tax benefits are also part of this path as per the tax benefits table .

Investors who choose to forgo the investment grants are eligible for tax benefit options. This option is administered directly by the Tax Authority and no prior approval is required. As long as the company meets the basic requirements (see section 2.2), the benefits are granted automatically.( For Foreign Investors - see next section)

1. Alternative tax path – Tax exemption for 10 years in Priority Area A. However if a dividend is paid out the dividend tax rate is 15% - and corporate tax will also be levied. In Priority Area B - Tax exemption for 6 years, 25% in the 7th (final) year. In the Center of the Country - Tax exemption for 2 years and 25% for the next 5 years.

2. Priority Area path - Tax rate of 11.5% for 10 years. Dividend tax rate - 15%.

3. Strategic Investment path – Large multi-national companies investing over US$130 million in a given project in Priority Area A, will be exempt from corporate and dividend tax for 10 years.

Foreign investors receive preferential treatment. To qualify the foreign investor must invest a sum of at least US$1.1 million and control at least 25% of the company. The benefit period for a foreign owned company is 10 years (compared to 7 years for a local investor).

1. Grant path - same level of grant as for local Israeli investor; however the tax rate is 10% and the benefit period as stated above is for a 10 year period.

2. Alternative tax path – Tax exemption for 10 years in Priority Area A. However if a dividend is paid out the dividend tax rate is 15% - and corporate tax will also be levied. In Priority Area B - Tax exemption for first 6 years, 10 % for another 4 years. In the Center of the Country (non-priority area) tax exemption for 2 years and 10% for the next 8 years.

3. Priority Area path – Tax rate of 11.5% for 10 years. Dividend tax rate of 4%. If dividend is paid out, the total tax rate becomes 15%.

4. Strategic Investment path – Large multi-national companies investing over US$130 million in a given project in Priority Area A, will be exempt from corporate and dividend tax for 10 years.

The Office of the Chief Scientist (OCS) of the Ministry of Industry, Trade and Labor is responsible for implementing the government policy of encouraging and supporting industrial research and development in Israel. The OCS provides a variety of support programs. The main one is The Law for the Encouragement of Industrial R&D which offers conditional grants of 20%- 50% of approved programs. Additional international funds and domestic programs including technological incubators are also available.

Israel has an extensive network of international agreements with countries throughout North America, Europe and Asia that facilitate international business including:

• Free Trade Agreements that cover close to 80% of Israel's foreign trade
• R&D programs to promote industrial cooperation that provide up to 50% of costs for joint projects
• Treaties for the avoidance of double taxation

The Israeli economy grew on average 5% annually between 2005 and 2008, but was slowed down by the financial crisis in 2009. Nevertheless, while most countries registered negative growth for the year, Israel's gross domestic product (GDP) grew 0.7% to about $193 billion at current prices. The Bank of Israel expects economic growth in 2010 to climb back to about 3.5%, just below the average in recent years.

In purchasing-power-parity (PPP) terms, Israel's GDP per capita, which has averaged close to $30,000 for the past couple of years, has been on par with other members of the Organization for Economic Cooperation and Development (OECD), which it joined in May 2010. In fact, over the past 20 years, the country – with a population of only 7 million – has ranked as one of the world's five fastest growing emerging markets.

In 2009 the consumer price index (CPI) grew by 3.9% following a 3.8% increase in 2008, 3.4% in 2007 and compared to close to 0% in 2006. In recent years Israel has joined the ranks of economies with the lowest inflation rates in the industrialized world.

Responsible fiscal and monetary policies have accompanied reforms that have liberalized the economy, accelerated the process of privatization and made the economy more competitive

The Bank of Israel has signaled it will continue to implement an expansionary monetary policy that seeks to support economic growth, while bringing inflation in 2010 back to the midpoint of the target price stability range.

Leading international rating agencies continue to express confidence in the Israeli economy, amid the global financial crisis. In 2009 Fitch maintained its foreign currency Issuer Default Rating (IDR) for Israel at A with a stable outlook, and its local currency IDR at a stable A+. International rating company Standard & Poor's kept its A/A-1 rating with a stable outlook on Israel's long/short term foreign currency debt and AA-/A-1+, stable, on its long/short term local debt. S&P said "the rating affirmation reflects the government's commitment to continued fiscal discipline and the resilience of the Israeli economy after five years of strong GDP growth at over 5%, notwithstanding a tense political and fiscal environment."

Moody’s, in its 2009 Israel report, also kept its relatively high A1 rating with a stable outlook that it had awarded Israel the year earlier.

The following charts summarize Israel's rating by the leading international agencies.

Invest in Israel is the investment promotion center of Israel’s Ministry of Industry, Trade and Labor, Foreign Trade Administration. The center serves as the marketing agency for foreign investments in Israel and as a full-service “one-stop shop” for foreign based companies and individuals who are interested in investigating direct investment and joint venture opportunities in Israel. Invest in Israel provides service, support and information to potential and current investors.

Invest in Israel works closely with potential and current investors before, during and after investment, and serves as a resource for investment related information about Israel.