Leo Leiderman: Room for BoI intervention.
Leo Leiderman Photo by Ofer Vaknin
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Incoming Bank of Israel Governor Leo Leiderman foresees higher housing prices and lower economic growth, and agrees with predecessor Stanley Fischer that it’s the government’s job to keep apartment prices down, not the central bank’s. At least that’s the outlook based on Leiderman's recent comments as Bank Hapoalim chief economist.

"As long as the United States and the euro zone have high and even rising unemployment rates and there is a real fear of returning to a recession, central banks won't hurry to raise interest rates," Leiderman said at a conference last month held by Israeli credit-rating company Midroog. "We’re still far from that, and the expectation that inflation will be very low only reinforces this assessment."

Regarding economic growth, Leiderman is much more pessimistic than the Bank of Israel, which has forecast 3.8% growth for 2013 and 3.2% for 2014.

"The 12-month period between the middle of this year until the middle of 2014 is portrayed by our analysis at Bank Hapoalim’s economics department as a transition period in which Israeli economic growth is expected to fall to a disappointing 2.5% in annual terms,” said Leiderman. "Economic policy must emphasize the importance of returning to a growth environment above 3% - not including natural gas - in the second half of 2014."

Leiderman also weighed in on the negligible growth in business credit. "The effective constraint isn't on the supply side, but the absence of demand for credit from the business sector … which is partly an indicator of the economy's weaker growth engines," he said.

Leiderman also believes that housing prices will keep rising, with the sector supporting growth. He noted that real estate companies have done well in bond offerings this year, but they’re using the money to increase liquidity and fund ongoing operations, not to start new projects. The main factor keeping housing prices high was the government, Leiderman said.

"Without a change in the government's policy for releasing land [for development], it's reasonable to assume that surplus demand for apartments in high-demand areas will even increase in 2014 and 2015, which will push prices higher," he said. "With this in mind and given the expected growth slowdown, the housing market should turn into a key growth engine for the economy in the coming years."