How well will the Israeli economy perform in 2008?  After four consecutive years of rapid growth - from 2004 through 2007, with GDP increasing annually by over 5% and business sector product - by over 6%, we may be becoming blasé about growth.

Certainly, growth estimates for 2007 fit well into this picture.  In mid-October, the Central Bureau of Statistics published an estimate for 2007 GDP growth of 5.2% and for business sector growth of 6%.  On November 12th, the Bank of Israel published even better estimates for 2007: GDP growth of 5.4% and business sector product of 6.2% (the graph shows these estimates).

But the central bank is somewhat more circumspect about 2008, based on its forecasts for next year.  GDP is forecast to increase by 4.4% in 2008 and business sector product by 5.3%.  These are still admirable rates of growth, certainly compared to forecast growth in most other developed economies.  And it is unreasonable to think that the more-than 5% annual GDP growth of recent years can continue indefinitely.

So where is the circumspection?  It is connected with the possibility (some would say probability) that the US economy will go into recession in 2008, dragging the global economy into recession or at least far slower growth.  Under this scenario, GDP growth for 2008 is forecast at 3.6%.

But even this is a very reasonable rate of growth.  If we look at GDP components, investment is forecast to increase by a high 8.2% (compared to a 10.4% estimated increase in 2007), and even in the US recession scenario, investment growth is forecast at 7.8%.  Growth of investment is an important ingredient in the maintenance of a long-term growth process.

Another important indicator of growth is the increase in private consumption, which sheds light on the standard of living.  The 2008 increase here is forecast at 4.8% (compared to 6.2% in 2007), while a US recession in 2008 is expected to bring the increase down to 3.9%.  But these rates of increase are well above the expected population increase so that per capita consumption (the standard of living) is forecast to continue increasing in 2008 for the fifth consecutive year.

Overall, therefore, the Israeli economy looks like it will continue to perform reasonably well in 2008, even if a global recession develops.  It remains to be seen if this is the actual outcome for 2008.

Provided as an information service for AICC by I-Biz - Israel Business Information Services Ltd.  For more information, visit www.i-biz.co.il or contact info@i-biz.co.il. 

• Intel's Haifa R&D center played a key role in the development of Penryn, the new 45-nanometer processors that will be produced at the company's Kiryat Gat Fab 28 facility when it has completed construction.
• Harbor Group International, co-owned by Tel Aviv-based Electra Real Estate, recently purchased the 228-unit Abernathy Apartments in Sandy Springs, Georgia for $24.35 million.  The company previously acquired the Hurt Building and 34 Peachtree in downtown Atlanta. 
• Ness Ziona-based Foamix has signed a product development agreement with US drug company Ferndale Laboratories for a non-steroidal foam for the treatment of atopic dermatitis, a skin disease that mainly affects children.  The transaction was negotiated by AICC Medical Committee chairman Charlie Harrison.
• AOL has acquired Ramot Hashavim-based Yedda, a developer of a semantic search engine that can analyze questions and queries of web surfers.  The company will become a subsidiary of AOL which will integrate Yedda's technology in AOL websites, the largest Internet community in the world.  AOL participated in the July 2007 US-Israel New Media Business Exchange organized by AICC.
• Israeli wineries Yarden and Domaine du Castel have been given the coveted Four Stars awarded only to the finest wineries in the world.  Other Israeli wineries merited three stars for their best wines: Yatir, Flam, Margalit, Galil Mountain, and Carmel.
• Caesarea-based Mazor Surgical Technologies has launched a bed-mounted miniature robotic device that enables spine procedures to be performed in a minimally invasive manner rather than to the patient's bony anatomy.  Mazor maintains its US headquarters in Atlanta.
• Tel Aviv-based cVidya has signed an OEM agreement with Hewlett Packard to integrate the company's MoneyMap system in the HP CentralView Revenue Leakage Control solution for communications, media, and entertainment companies.  cVidya participated in the AICC-organized US-Israel Broadband Business Exchanges in 2005 and 2006.
• Pfizer will invest in the Biomedix incubator, a subsidiary of the Kiryat Shmona-based Meytav Technological Enterprises Innovation Center.  The companies announced that they will jointly establish a second incubator in the Galilee.
• Ramat Hashofet-based Polygal has developed a ski tunnel to enable skiers to remain on the slopes while keeping warm.  The tunnel was quarried and built in granite rock and was erected in Finland.  Polygal maintains its US headquarters in Charlotte, North Carolina.
• DirectTV has selected Ra'anana-based NICE Systems' adaptive interaction analytics system at five of its contact centers.  The software is designed to drive revenues and improve operational and delivery efficiency.
• Gedera-based TAT Technologies subsidiary Limoco-Piedmont Inc., based in Kernersville, North Carolina, has received a $3.5 million contract from the US Air Force for the overhaul of heat exchange units for the KC 135 tanker aircraft.  First shipment for the five-year program is expected to begin in January.
• The 2008 US Department of Defense budget, passed last week by Congress, includes $295 million in procurement from Israeli defense contractors including Rafael, Israel Aerospace Industries, and Elbit.  
• The Israeli venture capital industry invested $361 million in 39 transactions during the 3rd quarter of 2007, 19% more than in the corresponding quarter of 2006 according to Ernst & Young's VentureOne survey.  This finding contradicts PricewaterhouseCoopers' MoneyTree report for the 3rd quarter which states that 13 early stage start-ups raised an aggregate of $36 million, less than the amount raised in the corresponding quarter.
• According to the Federation of Israeli Chambers of Commerce, the rapid development in the Israeli economy over the last four years has added 200,000 new jobs, with 146,000 in the trade and services sector.  FICC's economic department forecasts that 50,000 more employees will be added by the end of 2007. 

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American Israel Educational Institute Southeast, Inc.

Invite you to a special networking event and presentation

"Why Israel is the Best Place in the World to Invest"
featuring

 David Anthony
Managing Partner, 21Ventures

Wednesday, November 28, 2007 7:30 AM

Kilpatrick Stockton
1100 Peachtree St. NE, 27th Floor
Atlanta, GA 30309
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Though the Israeli economy and Tel Aviv Stock Exchange are thriving, there remains a "gap" in the Israeli economic landscape that threatens the current growth and vitality in the country's vital technology sector.  The Office of the Chief Scientist provides initial funding for technology development, and late stage companies can generally count on support from the venture capital community, but those at the early stage are often forgotten.  The irony is that these companies are the lifeblood of the Israeli business community of tomorrow.  What can be done to ensure that the Israeli economy remains strong?

David Anthony is managing partner of 21Ventures, a venture capital enterprise which solely invests in and develops seed and early stage Israeli technology companies.  He is also an adjunct professor at the New York Academy of Sciences where he teaches technology commercialization to PhD candidates, post-doctorates, and faculty from Columbia, NYU, Princeton, Yale, Rockefeller, Einstein and Sloan-Kettering, and is Entrepreneur in Residence at the University of Alabama at Birmingham.

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