WarSclerotic

The Israeli economy is expected to grow by 3.8 percent in 2013 and 3.3% in 2014, the International Monetary Fund said on Tuesday. The fund’s economists pointed out that Israel’s economy was strong, stable and diverse.

The IMF’s outlook is similar to the that outlined by the Bank of Israel, according to which Israel’s economy will have grown by 3.6% by the end of 2013 and will grow by 3.4% in 2014. In any event, Israel’s economy will likely outpace all other Western economies throughout the entire period. The U.S. is expected to experience only 1.6% growth in 2013 and 2.6% in 2014. The eurozone is expected to grow by 0.4% this year, and by 1% in 2014.

The IMF warned that the current U.S. budget battles and Washington’s possible default could adversity affect growth in emerging markets.

Meanwhile, the Palestinian economy shrank for the first time in a decade in the first half of 2013, the World Bank said, blaming a decline in foreign aid and myriad restrictions imposed by Israel.

Israel has pointed repeatedly to strong growth in Palestinian cities as vital to restoring relative stability to the area, so news of a worsening outlook will raise concerns of a possible rise in unrest.

The World Bank blamed the 0.1% economic contraction on a decline in foreign budget support to the aid-reliant Palestinian government, saying it exposed the “distorted nature” of the economy.

Its report focused particularly on territory known as Area C — some 61% of Judea and Samaria which is under full Israeli control. The World Bank said the Palestinians could boost their economy by a third if they were able to exploit this land.

Palestinians have self-rule in Area A, which makes up 18% of the territories, and share responsibility for a further 21% in Area B, but the resource-rich Area C is administered by Israel and is home to many Jewish communities.

“The manner in which Area C is currently administered virtually precludes Palestinian businesses from investing there,” the World Bank said. “Since Area C is where the majority of the West Bank’s natural resources lie, the impact of these restrictions on the Palestinian economy has been considerable.”

The bank noted that Judea, Samaria and the Gaza Strip saw annual economic growth of some 9% in the years 2008-2011. That slowed to just 1.9% year on year in the first six months of 2013, with Judea and Samaria’s gross domestic product contracting.

“The faltering nature of the peace process and the persistence of administrative restrictions as well as others on trade, movement and access have had a dampening effect on private investment and private sector activity,” the bank said.

It said donor aid had fallen by more than half in 2012. Economists have blamed the drop on the global economic downturn, dwindling U.S. funding and Arab world uprisings that diverted the attention of wealthy Gulf states.

The years of rapid growth have brought little obvious improvement in people’s lives. Unemployment and poverty have grown to affect around a quarter of Palestinians.

Negotiations

Israeli-Palestinian peace talks resumed in late July after a three-year hiatus. Negotiators will examine problems raised by the World Bank report, the Israeli Foreign Ministry said.

“The report touches on numerous important issues which will be settled in the current negotiations,” said Foreign Ministry spokesman Yigal Palmor. He added that the Washington-based bank’s analysis was “incomplete, partial … and therefore totally unrealistic.”

Israel has resisted Palestinian economic initiatives and foreign humanitarian help to local residents in Area C, saying its status had to be resolved through peace negotiations.

Habayit Hayehudi, a party in Israeli Prime Minister Benjamin Netanyahu’s coalition, called for annexing Area C outright during the election campaign earlier this year.

Netanyahu has said restrictions on Palestinians eased in recent years and this was helping improve their lives and economic prospects.

But violence has been on the increase recently.