It's hard to believe that a country that is in the midst of ongoing war would be doing well economically, but Israel is. Exports of diamonds, high-tech equipment, and pharmaceuticals have helped it grow 5% a year, on average, since 2004. It imports oil, military equipment and raw materials including grain, creating a trade deficit. Its biggest trade partner is its ally, the U.S.
In 2013, Israel's economy grew 3.3%, while its GDP per capita was $36,200. Inflation was a moderate 1.7%, and unemployment was also mild at 5.8%. However, these general statistics cover up high income inequality. More than one-fifth of its population live below the poverty line, which is $7 a day. Only 9% of the workforce are employed by the thriving high-tech sector, while those employed in services and manufacturing face downward wage pressure. As a result, some groups (ultra-Orthodox and Israeli-Muslims) have a low labor force participation rate.
Discovered in 2009, the Tamar and Leviathan natural gas fields are some of the world's largest offshore finds in the past ten years. Tamar production added one percentage point to Israel's GDP in 2013, while the even bigger Leviathan field will come online in 2018. (Source: CIA Factbook, Israel's Economy)
Why Is Israel's Economy Strong?
Despite obvious potential for volatility, Israel’s economy attracts strong Foreign Direct Investment (FDI) thanks to steps the government and central bank have taken to increase investor confidence. These include: lowering the public debt, signaling the market when the central bank decides to raise interest rates, and successfully stemming inflation.
In addition, Israel has an educated labor force, government incentives for foreign investors, and a high level of R&D investment in technologically innovative startups.