Alex Brummer

Alex Brummer

by Alex Brummer, City Editor, Daily Mail 

The Israeli economy looks set to recover strongly from the slowdown of 2014 despite a weakening global picture and the surge of Islamic uprisings in and around the Jewish state.

This upbeat assessment is one of the few bright spots, along with the prospects for Britain and the United States, in the International Monetary Fund’s gloom-ridden new World Economic Outlook (WEO) report.

The report was written before the current outbreak of Palestinian violence against Israeli citizens and the toughened security imposed by the Netanyahu government. Nevertheless, it is laced with geopolitical warnings, noting that “ongoing events around the Ukraine, the Middle East and parts of Africa could lead to an escalation in tensions and increased disruptions in global trade and financial transactions”.

Published twice a year, the WEO is regarded as the most authoritative assessment of global economic trends and is based on both analysis and annual inspections of national economies by the IMF’s crack team of economists.

This group is currently headed by former White House adviser Maurice Obsfeld. He is a product of the economics powerhouse at the Massachusetts Institute of Technology founded by Nobel prize-winner Paul Samuelson and the intellectual home of many distinguished Jewish economic thinkers. The overall tone of the IMF report is negative.

It points out that in 2015 global growth is expected to slow to 3.1 per cent. This will be the fifth year in a row that world output has fallen. Behind the decline is the slowing Chinese economy, which will fall below a seven per cent expansion; big falls in global commodity prices hurting emerging-market nations such as Brazil, and the sluggish recovery in the eurozone.

In the Middle East, the big transforming event is seen as the revival of commerce in Iran following the nuclear agreement with the US, Britain and the other Western powers that has been bitterly contested by Israel.

The IMF forecasts output in Iran will spurt from just 0.5 per cent this year to 4.4 per cent in 2016, making it one of the fastest-growing economies in the region, and argues that the lifting of sanctions will allow for a recovery in oil production and exports.

Britain will be among those nations seeking to prosper from Iran’s return from the sanctions regime that stifled its economy and forced it to the negotiating table. Chancellor George Osborne is planning a visit to Teheran next year as part of his efforts to bolster UK trade outside the slumping eurozone.

When I asked Osborne about this at the IMF meetings in Lima this month he told me: “Iran has been in the international deep-freeze for many years, there is a very tough sanctions regime which Britain has led the world in implementing and we have lots of concerns, not just about Iran’s nuclear program, but about issues around terrorist financing and human rights and of course we raise all of those things.

“But the deal we have signed with Iran alongside countries like the United States does allow for a relaxation of the sanctions that are connected with their nuclear program. We make that visit with our eyes wide open.”

The return of Iran to the international community will be deeply worrying to Israel and Saudi Arabia, which see its rulers as exporters of Islamic extremism across the region.

The violence by Islamic State and other radical movements is playing havoc elsewhere across the Middle East. Among the countries badly affected by conflict, says the IMF, are Iraq, Libya and Yemen.

It notes a collapse of activity in the Yemen, where Saudi fighter planes have been bombing Shi’ite rebels. Libya also is suffering from civil war and the arrival of followers of Islamic State on its shores.

The outlook is better for more stable Middle East states despite the movements of refugees across the region. Growth in Egypt is seen as expanding at a good 4.2 per cent this year and 4.3 per cent next, and Jordan, the recipient of much Western aid, also is on a growth path. Amid the turmoil across the region, Israel is seen as a beacon of stability.

Like much of the eurozone, 2015 is expected to be a year of flat inflation, rising to a more-normal two per cent in 2016 as world commodity prices start to recover. In spite of the slowdown in China, a big Israel trade partner, the IMF sees the Jewish state’s current-account balance with the rest of the world improving this year and next.

The jobless rate, at just over five per cent of the workforce, is the lowest in the region and among the least troubling in the advanced world.

So far, the spill-over from recent violence and the interruption in the peace process does not appear to have affected Israel’s long struggle for economic stability and prosperity.