JERUSALEM — Israel has always been viewed, at least by its supporters, as a miraculous place. And as the Great Recession continues to ravage the West, the Jewish state has surprised the world again by outperforming many countries during the crisis.

Israel’s GDP (see above) remained strong in 2008 and shrunk only slightly in 2009. Moreover, growth is expected to surge this year and then return to pre-recession levels. Israel also avoided deflation in 2009, raising hopes here that the country would not fall victim to a Japanese-style Lost Decade that still threatens much of the West. (The data is from economywatch.com, and the 2010 numbers are current – though perhaps optimistic – projections.)

So, how did Israel do it? Through common-sense, saving-and-investing methods; sensible monetary-policy; and sound fiscal-policy. The Israeli economy has little exposure to subprime mortgages and other toxic assets that are still threatening the very foundations of Western banks; Israeli consumers have an average savings-rate of 30 percent (so, fewer defaults) versus America’s negative rate just before the downturn; and Israeli banks have tougher standards for loans.

In addition, Israelis do not have the general addiction to consumer debt that Americans had developed over the last several decades. For example, Israeli credit-cards do not carry large limits that can be paid off over a long period of time. Banks instead state a monthly limit based on the card holder’s monthly salary. The card’s balance – with the interest – is then automatically deducted from the person’s checking account the following month. Less credit and debt means a standard of living that is slightly lower than Western Europe, but it creates less risk and makes recessions less painful on households.

Barclays Capital analysts Daniel Hewitt, Koon Chow, and Arko Sen list additional reasons for Israel’s soft-and-quick recession:

Israel’s economy is “ready to roar…”

The analysts see three main reasons why Israel made it through the recession better than other economies. Israel’s financial sector was not as vulnerable, “radical” monetary loosening by the Bank of Israel limited a decline in domestic demand, and that decline was also offset by improvements in net exports.

The increase in exports has been all-the-more surprising since the Israeli shekel has gained strength as the U.S. dollar has fallen (see below). Israel is highly dependent on exports – mainly in the high-tech, bio-tech, and agricultural industries – so the fact that foreign consumers continued to purchase products and services that were more expensive only shows that the country’s economy has indeed remained fundamentally strong.

To help the domestic economy, the Bank of Israel lowered interest rates but raised them quickly – in comparison to the U.S. Federal Reserve’s decision to keep rates at near-zero for a significant length of time. To keep the shekel from rising too quickly and hurting exports, the Bank of Israel purchased U.S. dollars at a time when everyone else was selling. (In fact, Israel’s current-account surplus is a significant reason for the appreciation of the shekel.)

All of these factors have lead to a resilient Israeli economy:

“The Israeli economy has fantastic growth. Tax revenues are rising. The government’s situation is getting better as far as the deficit is concerned. Private consumption is up, as are companies’ profits and investment,” says Excellence Nessuah chief economist Shlomo Maoz.

Maoz added, “Exports are rising rapidly, especially for chemicals, quarries, pharmaceuticals, and processors. Interestingly for exports, there is an interesting trend of growing imports of raw materials for the basic industries, such as plastics and textiles. The last industries to see a growth in exports will see growth next year [in 2010].”

However, government policy under Benjamin Netanyahu – first as finance minister in the 1990s and then as prime minister today – also deserves credit. Netanyahu, who was educated in the United States, brought Israel from a socialist past dominated by labor unions and expensive entitlements to a capitalist present that is competing successfully in the globalized world:

While virtually every major power responded to the recession with stimulus plans, instead of panicking and throwing money at the situation, and pumping up the size of the debt in the process, Israel has instead worked toward stability and encouraged job growth through tax cuts…

As a result of [Finance Minister Dr. Yuval] Steinitz’s wise fiscal management, Israel’s debt-to-GDP ratio rose less than a percent since 2008…

By reducing corporate taxes to 25 percent, Netanyahu will insure that Israel has lower corporate tax rates than most of Europe, with the exception of Switzerland, Iceland, Ireland and a number of Eastern European countries. It will also have a nearly 15 percent lower corporate tax rate than the US’s outrageous 39 percent, a figure that has helped drive US companies overseas.

Israelis in Tel Aviv, the Silicon Valley of the Middle East, must compete with Indians for jobs in the high-tech industry, lowering labor-costs for Western companies here as well. But Israel has an advantage over India: nearly everyone educated enough to work in the sector speaks English more fluently and clearly than Indians. Those who have at least one parent who is a native English-speaker — and that is many people — speak the language without an accent at all.

In “Start-Up Nation,” Dan Senor (former chief spokesperson for the Coalition Provisional Authority in Iraq) and Saul Singer (former editorial-page editor of the Jerusalem Post) also argue what could be termed the “chutzpah thesis,” a term using the Hebrew-Yiddish phrase for “What nerve!” that signifies the Israeli work-culture: questioning authority, bucking the trends, thinking creatively, pursuing goals aggressively, and persevering through adversity.

Such traits may be essential during times of economic adversity:

Israel’s economy is set to recover from a shallow recession, the shekel will appreciate against the dollar during 2010, and GDP growth in 2011 will return to the level achieved before the economic crisis, says JPMorgan Chase in a review of the Israeli economy.

A return to the Great Depression may still occur in the West, but the Jewish state seems safe so far.

Samuel J. Scott is a former Boston journalist now living in Israel. He is the founder of the Considerations blog and SJS Consulting Worldwide. E-mail him at sjscworldwide (at) gmail.com.