By SHARON WROBEL
Israel's economy is strong, but geopolitical risk is concerning.
Geopolitical risk, especially increased tensions with Iran, could scare off investors interested in Israeli companies, Citigroup Inc. said in a report released Wednesday.
“Underlying economic fundamentals are strong in Israel, especially relative to other developed markets, but we are concerned by the geopolitical risk,” Citigroup analyst Michael Klahr was quoted as saying in the report titled Assessing Geopolitical Risk and the Investment Case for Israel. “There exists significant geopolitical risk due to an adversarial relationship with the Palestinians, Hizbullah (in Lebanon) and perhaps more worryingly with Iran.”
Citigroup cited the “ongoing conflict with the Palestinians that at times has taken a military turn, most recently in the Gaza offensive in late 2008, and there are the increasing tensions with Iran that have risen markedly since President Ahmadinejad came to office in 2005.”
Ongoing military conflict over the past 18 years has not impeded Israel’s economic growth a great deal, the report said.
The economy grew at an annual rate of 4.2 percent from 1980-2009 and maintained high fiscal credibility and low sovereign risk, it said.
Real GDP growth in Israel since 1960 has averaged 5.5% annually, well ahead of the global GDP rate of 3.5%.
“Non-existential geopolitical risk relates to the conflict with the Palestinians and with Hizbullah (and the PLO before them) in Lebanon, and in our view, does not constitute a threat to Israel’s existence,” Klahr said. “Existential geopolitical risk, such as the 1967 wars with Egypt, Syria and Jordan, and more recently, the threat of conflict with Iran, in our view, were, and could be, a threat to the country’s existence.”
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