Israel most vulnerable country to US economic slowdown

Bank of Israel Governor Stanley Fischer said this week that rising exports were indicative of the country's strong economic state.

By SHARON WROBEL
August 22, 2007 08:01
2 minute read.

Even as manufacturers reported export growth to the US for the first six months of the year, investment bank Morgan Stanley is warning that Israel would be most vulnerable to a US economic slump given the huge amount of product shipped out to America. "Israel is the most vulnerable country to a major slowdown in the US. With almost 40 percent of exports going to America, the Israeli economy is highly exposed to what happens in the US," analyst Serhan Cevik, analyst said in a research report analyzing how risks to growth in the US economy could threaten the rest of the world. "Indeed, its growth correlation with the US economy increased from negative 0.15 in the 1990s to 0.76 between 2001 and last year." Bank of Israel Governor Stanley Fischer said this week that rising exports were indicative of the country's strong economic state. According to a survey compiled by the Israel Export Institute of the Manufacturers Association of Israel, industry exports to the US excluding diamonds grew 5% to $4.7 billion in the first half of 2007, while exports to Latin America rose 3% to $656 million during the same period. Hi-tech exports to the US grew by 5% to $2.64b. in the first half of the year compared with the same period last year. At the same time, exports of local drugs to the US dropped 3% to $1.2b. Yechiel Assia, director of the IEI, said the fall in US drug exports, which make up 26% of all US industry exports excluding diamonds, had a negative impact of 21% on industry export growth during the period. For the full year, Assia predicted that industry exports to the US, excluding diamonds, would grow by 5% to $10.4b. from the $9.55b. generated in 2006. Over the past year, 740 Israeli companies launched business operations in the US bringing the number of Israel companies operating in the States to 7,363, an increase of 11% over 2005. Sector by sector analysis found that exports of household electronic equipment goods to the US rose by 271% to $113m. in the first half compared with the same period last year, while telecommunications equipment exports grew by 18% to $429m. Exports of electrical parts, however, fell 21% to $176m., while chemicals exports to the US dropped 10% to $367m. Meanwhile, Assia reported that the increase of exports to Latin America in the first half was driven mainly by a 28% rise in exports to Brazil, which amounted to $259m. Exports to Peru grew 21% to $17m.; exports to Argentina rose by 13% to $40m.; and exports to Chile grew by 2% to $41m. Exports to Mexico, which make up 21% of total exports to Latin America, remained unchanged at $136m. For all of 2007, Assia estimated an increase of 4% from 2006 to $1.42b. Separately, the Federation of Israeli Chambers of Commerce reported on Tuesday that 57% of companies in the trade and services sector were expecting an increase of over 5% in the volume of their sales in 2007 as 65% reported a similar rise in sales of over 5% in the first six months of the year. The FICC survey, conducted among 130 companies in the trade and services sector, showed that profits grew by 5% in the first half of the year at 36% of the companies, while 29% of the surveyed companies reported a decline in profits.


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