Barclays Capital came out predicting a quick end to the shallow Israeli recession, and a return to decent growth of 2.9%  by next year.  Keep in mind that the Israeli economy was late to the ‘recession game’ and looks to be an early ‘exiter’ from economic turmoil as well.

With all this great news Barclays said that they expect an Israeli Shekel/USD exchange rate of 3.65 buy the end of the year. That’s a big move from the 3.93 area that the currency is trading at now.

According to Globes: “Barclays sees a less severe recession in Israel, and relatively quick growth recovery. The investment house bases its optimism on the fact that about 75% of Israeli exports are high-tech goods, and Barclays says that a rise in the Tech-Pulse Index - showing a US high-tech recovery - points to stronger Israeli exports. The Tech-Pulse Index, measured by the San Francisco branch of the US Federal Reserve, tracks the US information technology sector.”

It looks like we have started to see this happen. As Tech has led the stock market turnaround in the US, Israeli stocks that trade in the US have been flying, up over 33% this year. Keep in mind that, like it or no, President Obama’s push for alternative energy sources will be huge for Israel, as Israel is one of the big global players in cleantech and water technology. If this trend of a ‘tech led recovery’ continues, look for the Israeli hi-tech scene, from small and mid-cap tech plays on the NASDAQ to M&A to Israeli VC, to have a very strong 2nd half of ‘09, and lights out for 2010.

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It was only a few weeks ago that market pundits were predicting the US Dollar to reach 4.5 against the Israeli Shekel. Well what sayeth you pundits now?

Can you say 3.89???? Giddy up. The Shekel, like most other currencies continue to soar as President Obama continues to print money. We have seen a 7% fall in the USD/NIS rate in less than a month. Didn’t Obama say that he wanted a strong greenback?

It’s not exactly like the Israeli economy is on fire. This is clearly a USD story and doesn’t have much to do with the Shekel. As long as we continue to see businesses become nationalized, and the US Mint working 24/7, this has the potential to become a bigger and longer trend.

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The much anticipated economic plan of the new Netanyahu government was announced today, with tax cuts and privatization taking a leading role. While the plan calls for  promoting jobs and halting unemployment, the cornerstone of the plan is tax policy and structural reform.

Netanyahu laid down the gauntlet by saying that by lowering taxes, Israel will become of of the world’s most attractive investment destinations. As the rest of the world is marching towards socialism, Israel appears to be headed in the other direction, embracing free market principals that have led the world to unseen prosperity over the last 28 years.

According to Globes: “Netanyahu and Steinitz also announced decisions on the structure of tax cuts between 2009 and 2016, which focuses on the middle class. Netanyahu said, “The middle class bears the heaviest burden, and as a complementary measure, we’ll promote the abolishing of exemptions and improve collection. Excellent people are working there, but it’s no secret that the institution has been traumatized.”

Netanyahu’s tax plan calls for reducing the company tax rate to 18% by 2016 and reducing the maximum income tax rate for individuals to 39%.

Netanyahu added, “The individual tax rate will fall in 2010. We must distinguish ourselves from the world, so that everyone sees that we’re the most attractive. We’ll we’ll attract entrepreneurs and capital because the company tax will fall.”

Let’s see if once again Netanyahu’s policies can save the Israeli economy from the abyss, and be seen as a model worldwide, that lower taxes, privatization and individual land ownership are the cornerstones to real economic growth; and not by government printing presses working 24/7. to artificially stimulate the economy while bankrupting future generations.

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With inflation in Israel already starting to surge, a new initiative to pass a law to use only local suppliers for procurements, is a sure fire way to create even more inflation. Israel should procure items from the suppliers who charge the least for the products. Not pay 20% more to buy from a unionized Israeli firm.

Manufacturers Association president Shraga Brosh- who always is calling for government intervention in the economy- is up to his old tricks. According to Globes: “Brosh added that Israel needs a law giving preference to local products. “The government should promote procurements from domestic enterprises, especially those in outlying areas, because the government is the biggest procurer in the economy. Negative income tax should be applied nationwide, because this money goes toward net consumption.”

Hey Shraga. Maybe if Israel was more competitive the current economic situation would be better?

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