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French Version

Gaza pullout boosts Israeli and Palestinian economies

Merrill Lynch revises 2005 estimate of Jewish state's economic growth up to 4.2 percent

Israel's historic pullout from the Gaza Strip has propelled Israeli and Palestinian stock markets to new highs and raised hopes for economic growth.

Tel Aviv's TA-25 index on Friday broke through the 720-point barrier for the first time, to reach 720.6, ending a week of gains since the pullout kicked off 4.9 percent up. The

first withdrawal of Jewish settlers from occupied Palestinian territories was also welcomed by investors at the West Bank's Nablus and Ramallah stock exchanges.

The Al-Quds (Jerusalem in Arabic) index reached a record high of 861.14, up 5.10 percent over the week and up a staggering 310 percent since the start of the year.

The unilateral withdrawal has also had a positive impact on Israel's gross domestic product, which was up 4.9 percent in the first half compared with the same period of 2004, according to the central bureau of statistics.

In the second quarter, growth reached 5.6 percent, it said.

Israeli business leader Shraga Brosh optimistically said that foreign investment in Israel "should practically quadruple" this year to reach six billion dollars.

Foreign investment tapered off with the beginning of the second Palestinian uprising or intifada in 2000 and the collapse of the hi-tech boom that had driven the Israeli economy.

"The withdrawal from the Gaza Strip is undeniably good news for business," Dan Catarivas, director of the Manufacturers' Association's foreign department, told AFP.

"For several months, we've felt increased interest from foreign investors who are increasing their purchases at Tel Aviv stock exchange as well as making contact with a view to buying Israeli high-technology companies in part or in whole." Brosh said that the apparent improvement in Israel's attractiveness to investors could translate into a swift upgrading by credit ratings agencies such as Moody's, Standard and Poor's, or Fitch.

Such a move would allow Israel and Israeli companies to get lower-interest foreign loans thanks to a reduction in "geostrategic risk factors".

Financial consultant Yaakov Sheinin projected that the Gaza withdrawal would result in a 1 percent growth of the Israeli economy over three years, despite the operation's estimated cost of $1.8 billion.

"Hopes about relaunching the political process (between Israelis and Palestinians) will also translate into a rise in local investments," he said.

"Economic growth is broad-based, suggesting that the Israeli economy is now on a firmer footing," Merrill Lynch said in a report last week.

As a result, the U.S. investment house revised its growth estimate for this year up from 3.8 percent to 4.2 percent and predicted a tourism boom.

"In our view, the latest GDP report could provide a big political boost for Prime Minister Ariel Sharon as he is likely to face a challenge from the former finance minister [Benjamin] Netanyahu after the implementation of the disengagement plan." Sharon's political rival Netanyahu resigned days ahead of the pullout, saying a "terrorist base" could now be set up in Gaza, with the two expected to vie for the leadership of their right-wing Likud party once the operation is complete.

Beirut,08 22 2005
The Daily Star
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