​Summary:

  • The current-account surplus remained high at $6.7 billion in 2010, down slightly from the 2009 level. As a percentage of GDP, the surplus remained 3.1 percent.
  • Israel had a trade surplus in 2009 and 2010 after many years of steadily declining deficits.
  • Israeli exports were less affected by the crisis than those of other developed countries because the crisis caused only mild damage to high-tech industries.
  • Israeli exports recovered more quickly than those of other developed countries, thanks to the growing share of Asian markets in exports and a rapid increase in exports of tourism and transport services.
  • Capital inflows from developed countries to emerging markets, including Israel, increased in 2010. Monetary expansion in the United States, the Eurozone, and the UK instigated large capital flows from these countries to the rest of the world, including Israel.
  • Rate-hiking in Israel, meant to prevent overshooting of the inflation target and to attenuate asset prices, had an upward effect on short-term capital inflows and currency appreciation.
  • The Bank of Israel, like other central banks, sought to alleviate the adverse effects of short-term capital inflows on the exchange rate and exports by purchasing foreign currency and also, at a later time, by imposing a liquidity requirement on transactions made for capital-inflow purposes.
  • According to an index developed by the International Monetary Fund, the Bank of Israel’s “resistance” to capital inflows in 2010 was not exceptional by the standards of other countries that were the targets of such inflows.
  • Israel’s integration into global capital markets is weak by the standards of developed countries. Israelis’ portfolio investments abroad (shares and bonds) are conspicuously small and their direct investments abroad are also relatively paltry.
  • Although the offshore gas discoveries are expected to allow large-scale substitution of imported energy sources, the substitution is likely to have only a mild effect on currency appreciation. Only if exports of natural gas become profitable is major appreciation foreseen, inflicting significant damage on the tradable industries—the "Dutch disease."