"The Israeli economy is strong and dynamic and notes favorably the coherent macroeconomic policies implemented by the Israeli government." - Moody's

The Swiss-based Institute for Management Development (IMD) has ranked the Bank of Israel in the top five among central banks for its efficient functioning in its 2012 World Competitiveness Yearbook for the third year in a row. The report also ranked Israel's economy 9th highest for its durability in the face of the global financial crisis.
 
Strong Fundamentals Confront the Global Economic Slowdown
 
At a time when the Israeli economy's resilience was put to the test by ongoing financial pressures resulting from the global credit crisis, the world's three largest rating agencies in a vote of confidence maintained high ratings for Israel. In 2012, Standard & Poor's Rating Services continued Israel's credit rating at A+, while Moody's Credit Rating Agency left Israel's A1-Stable rating unchanged and Fitch Ratings kept Israel's A Stable rating. While Israel has not been immune to the effects of the global credit crunch, as its main trading partners are hit by the lingering crisis, the country's sound macroeconomic fundamentals and strict fiscal policy serve as a buffer to dampen the impact of ongoing financial tremors.
 
As a consequence of the macroeconomic strategy adopted by Israel during the last two decades, together with the relatively conservative approach that was undertaken by the Israeli banking sector and the regulation carried out by the supervisor of banks, the Israeli economy was relatively well prepared to confront the challenges of the global crisis, including the prospects for economic slowdown. Though the crisis continues to loom from nearby Europe and a consequential slowdown could impact trade with the continent with which Israel has considerable commercial ties, Israel's comparatively strong economic performance throughout the crisis vouches for its ability to continue to withstand any further financial pressures.
 
The Israeli policy of removing barriers to trade and to open capital movements has served the economy extremely well.  Israel is committed to openness as a strategic approach, while recognizing the importance of financial sector regulation.  The adoption of this strategy contributed significantly to Israel's economic growth and its increased economic efficiency.   
 
Measures Aimed to Boost the Economy
 
To help safeguard the economy, Israel’s Ministry of Finance, Ministry of Economy (formerly Industry, Trade and Labor) and the Bank of Israel implemented special initiatives including creation of a pension safety net and a monetary program to help increase liquidity, create new jobs, protect private savings and promote 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%; from late 2008 to early 2009 the central bank slashed lending rates by a cumulative 3.75%. The rate cuts, which were meant to support the economy by lowering the cost of credit and thereby contribute to financial stability and partially offset the downward pressure on prices, were in line with the policies of central banks globally. As the Israeli market is heavily dependent on revenues from exports, the expansionary monetary policy also served to curb the shekel's strength relative to many of the globally weaker currencies to assist the competitiveness of Israeli products internationally. In August 2009, the Bank of Israel was the first central bank to start raising short-term lending rates again, in line with the continuous recovery of the Israeli economy while maintaining inflation within the range of 1% to 3%, which is defined as price stability. Israel's key lending rate stood at 2.25% in September 2012.

 
To help support the economy, beginning in March 2008 the Bank of Israel also increased the level of foreign exchange reserves by purchasing about $100 million per business day with the aim of increasing reserves. By December 2011 foreign reserves had been increased to $75 billion. Israel's foreign exchange reserves hit an all-time record of $78.078 billion in August 2011.
 
Outstanding Economic Performance
 
Though Israel is a small country with limited resources, responsible fiscal and monetary policies and a host of reforms aimed at liberalizing the economy, have allowed it to stand out as one of the world's most competitive economies. 
 
Over the past 20 years, Israel – with a population of just 7.8 million – was ranked as one of the world's five fastest growing emerging markets and in 2010, Israel was upgraded from an emerging market to a developed market in the MSCI Index.
The IMD ranked Israel 19th out of 59 of the world's most economically developed nations in its 2012 World Competitiveness Yearbook, within two places of its 2010 and 2011 rankings.
 
The effectiveness of Israel's fiscal and monetary policy is further reflected in its economic performance. Gross Public Debt as a percentage of GDP contracted from 102% in 2003 to 75% in 2011, while unemployment declined to a record low and stood at 5.6% in December 2011 while maintaining price stability.
 
The country's market economy can be characterized as resilient, globally-oriented and technologically advanced.  Over the last two decades, Israel has become famous for its high-tech capacity, particularly in telecommunications, information technology, water and environment, as well as electronics and life sciences.  Its capacity for innovation coupled with a highly-educated, skilled workforce has played a key role in its rating as a high-tech center. A report from the Startup Genome, compiled in association with Telefףnica Digital and researchers at Stanford University and the University of California, Berkeley, ranked Tel Aviv as second only to Silicon Valley in California, the only non-US city in the top five.
 
Despite the pressures of the global financial crisis, the Israeli economy continued to grow in 2012. Gross domestic product grew 3.4% in the second quarter of 2012. The Israeli economy grew 4% annually on average from 2002 to 2012 and in purchasing-power-parity (PPP) terms, Israel's GDP per capita averaged close to $30,000 in recent years. In recognition of the continuous progress of the Israeli economy, Israel was unanimously accepted into the OECD in May 2010 following careful review with respect to its compliance with OECD standards and benchmarks.
 
Growth of the Israeli economy is largely fueled by a steady increase in exports and foreign investment.  International investors continue to show their recognition of Israel's economic potential by increasing their investments in the country. Foreign direct investment (FDI) in Israel reached $4.4 billion and $5.1 billion in 2009 and 2010 respectively. By 2011, it had reached a high of $11 billion.
 

Though exports were weighed down by the effects of the credit crisis, they continued to be supported by an extensive network of international trade and economic agreements. Israel is integrated into the global economy through free trade area agreements with the NAFTA countries (the U.S.A., Canada and Mexico), the European Union, Mercosur (Brazil, Argentina, Uruguay and Paraguay), EFTA, and Turkey. It also cooperates with neighboring Egypt and Jordan through US-sponsored Qualified Industrial Zone (QIZ) agreements, giving co-produced goods preferential access to U.S. markets; a similar arrangement of accumulation of origin also exists with the EU.
 
In addition, Israel has developed an extensive network of technical cooperation, through R&D accords with many countries as well as R&D agreements with multinational companies, several of which chose Israel as their first international location and have been here for over 40 years. Indeed, some of these multinationals' most innovative breakthroughs were developed in Israel.
 
The Way Out of the Crisis: An Ecosystem of Support
 
Through government agencies such as the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor; a network of technology incubators for very-early-stage technologies; as well as an active and alert private venture capital system, Israel provides extensive support for new ideas and technologies, and assists the further development of more traditional industries. Israel invests strongly in R&D, where its investment of nearly 5% of GDP is one of the highest in the world. The investor-friendly environment is enhanced by government policies including lower tax rates and investment benefits. 
 
It's hard to ignore the important role of Israel's venture capital industry, which the World Economic Forum has ranked third in the world after the United States. Venture capital continues to pump a steady stream of essential financial resources into the technology sector by channeling its funds and knowledge into early-stage companies.
 
This ecosystem of support has fostered what have become the world's highest percentage of high-tech production relative to GDP, and the second highest concentration of high-tech companies, after California's Silicon Valley.
 
The Investors Keep Coming
 
 In recent years, Israel has become a magnet for foreign investors.  The list of those who have taken advantage of Israel's uniquely skilled, and highly educated workforce and cutting-edge R&D capabilities by establishing R&D centers, subsidiaries, and production lines include top international companies like Intel, Microsoft, Motorola, Google, Applied Materials, HP, Deutsche Telekom,  and Samsung among others. Even Apple has recently announced its intention to open its first overseas R&D center in Israel.  Given Israel's emphasis on innovative technologies and research, Israeli companies continue to attract foreign investors. Despite the global credit crisis multinational concerns continue to invest in Israeli expertise. Multinational companies have been acquiring Israeli companies from various sectors for several years. Some recent examples include: Facebook's acquisition of Face.com for $60 million, EMC's acquisition of XtremIO for $450 million, Akamai's acquisition of Cotendo for $268 million,  DG FastChannel's purchase of (DGIT) MediaMind Technologies for $517 million, CSR's acquisition of Zoran for $679 million, Intel's purchase of Telmap Ltd for $300 million and Broadcom's acquisition of Provigent for $313 million.
 

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