Strengths

• Well-developed science and technology sector
• Large offshore reserves of natural gas

Challenges

• Unstable coalition governments
• Geopolitical tensions

Source: Economist Intelligence Unit (www.eiu.com)

Political Trend

Israel is a country with proportional representation and universal suffrage. The Prime Minister serves as head of government. However, no Israeli administration has completed a full term since the 1984-88 government of national unity. In December 2014, the coalition government under Prime Minister, Binyamin Netanyahu, was in growing divergence over a long list of issues, leading to the dissolution of the government that had just served for less than two years of its four-year term, and prompting an early election in March 2015.

Netanyahu was elected to Prime Minister of Israel for the fourth time during the election in March. The Likud party that he led emerged as the largest party, clearly ahead of the Zionist Union. The new cabinet will need to respond to a number of issues that proved divisive in the outgoing government, including security concerns and continued public discontent over growing income inequality, rising living costs and a shortage of housing, despite relatively healthy economic fundamentals.

On the security front, relations between Israel and the United States appeared to be fraying. In April, Israel issued a formal statement opposing the framework nuclear agreement the P5+1 (the five permanent UN Security Council members plus Germany) agreed with Iran, which had exacerbated its relations with the Obama administration. Meanwhile, security risks in Israel remain elevated despite the Egypt-brokered truce between Israel and Islamist group Hamas in August 2014, as highlighted by protracted violence even after the ceasefire.

Economic Trend

* Estimates ^ Forecast
Source: Economist Intelligence Unit (www.eiu.com)

In 2014, the Israeli economy grew at its lowest rate in the past five years, as the 50-day war against Hamas and other Gaza terror groups in summer weighed down heavily on the country’s tourism and private consumption. Fortunately, the economic impact of the conflicts was proved to be short-term, growth is expected to bounce back to above 3% in 2015, driven by the rebound in domestic demand that followed the end of the Gaza conflict and the projected strengthening of external environment. The economy should also be supported by the ultra-low interest rates, currently at 0.1%, and a pause in fiscal consolidation in 2015. The central bank projected that it will leave the interest rate at its low level in the coming quarters in order to support economic activity and a return of inflation to around the midpoint of the 1-3% target range.

Looking ahead, Netanyahu will seek to promote a policy agenda that emphasizes economic liberalization and low taxes. In fact, Israel’s debt levels have been steadily falling for years, from 81.9% of GDP in 2008 to an estimated 66% in 2014. Currently, Israel was assigned ‘A+’ by S&P for the state’s credit rating with a stable outlook, Still, Israel pays a higher premium on its debt than most other OECD countries. In 2015, Israel was scheduled to pay US$10 billion in interest payments alone, more than two-thirds of its defense spending.

Hong Kong-Israel Trade

Israel was the 25th largest export market for Hong Kong in 2014, with exports value accounting for 0.5% of Hong Kong's total exports. Total exports from Hong Kong to Israel increased by 19.0% from HK$ 16,040 million in 2013 to HK$ 19,083 million in 2014. The top three export categories to Israel in 2014 were: (1) Non-metallic mineral manufactures, nes (+23.1%), (2) Telecommunications, audio & video equipment (+17.0%), and (3) Electrical machinery, apparatus & appliances, & parts (+8.0%), which represented 89.8% of total exports to Israel.

ECIC Underwriting Experience

The ECIC imposes no restrictions on covering Israeli buyers. Currently, the insured buyers in Israel are mainly small and medium-sized companies. For 2014, the number of credit limit applications on Israel decreased by 24.2%, but the amount of credit limit applications and Insured business increased by 17.8% and 0.9% respectively. Major insured products were electronics (+21.3%), metallic products (-13.2%) and mineral products (+40.6%), which represented 34.9% of ECIC’s insured business on Israel. The Corporation’s underwriting experience on Israel has been satisfactory, with three payment difficulty cases of small amount reported from April 2014 to March 2015, involving metallic product, electronics and clothing.