"There is no doubt we are out of the recession," Finance Minister Benjamin Netanyahu said in November, 2003, and received a torrent of criticism and abuse. It is a little more difficult to argue with him today. The data suggests we have emerged from the pit of recession, but it is still unclear whether we are completely out of it, into quick and stable growth, or whether this is a passing phase.

In any case, in addition to the data on the rise in taxes collected during the first quarter of 2004, there are other signs that we are out of the recession. In January, there was an increase in industrial production and revenues in the service and trade sectors. In February, there were signs of recovery in the fields of construction, and an increase in the number of tourists. During the first months of the year, purchases by homesteads using credit cards increased by 12 percent, compared to the same period a year before.

The increase in the tax collection (12.4 percent in the first quarter this year compared to the same period in 2003) suggests an acceleration of economic activity and a rise in private consumption. The rise in state revenue is increasing in spite the lowering of taxes.

In January, income tax was lowered, in February, customs and sales tax was lowered, and in March, VAT was lowered to 17 percent. For the first time in three years, VAT returns in March increased by 20 percent, suggesting a growth in exports and investments.

Senior treasury sources say they do not expect any problems in meeting this year's deficit goal of 4 percent of the gross domestic product (GDP). It may even be possible to continue lowering income tax to the benefit of lower and middle classes - as promised by Netanyahu.

However, the good news must be taken with a pinch of salt, because the data is compared to the first quarter of 2003, a particularly bad period. It is also important to remember that the economy lost 13 percent of its GDP (NIS 65 billion) over the past three years, so the slightest change for the better is well felt.

In order to check whether the recession has come to a full end, it is important to examine whether growth will reach its potential of 4-5 percent, and whether this will continue year after year. It is also important to examine whether unemployment drops to levels of 1996 - 6.6 percent - compared with the current 10.9 percent.

Unemployment is a difficult indicator. Not only is it not declining, it is rising. On average in 2003 it stood at 10.7 percent and rose to 10.9 percent in early 2004 - a total of 287,000 unemployed. It is clear there will not be a quick decline in unemployment, even when growth is renewed, because factories will not hire new workers but maximize their production with the current work force.

The reason for the rising unemployment is that growth is simply not sufficiently sharp.

It is important to examine the reasons for the current growth in order to appreciate whether it is long-term.

First, the liberal economic policy of Netanyahu, which wants to limit the public sector, lower taxes, cut grants, and fight the large monopolies, is a correct one.

Second, the international economy has improved, and the turn in the high-tech sector began over a year ago and spread over other economic areas. Israel, an economy dependent on exports, is benefiting from this improvement.

Third, the reduction in the number of terror attacks inside the Green Line has decreased the sense of uncertainty, a lethal blow to any economic activity. Terrorist actions diminish the wish to invest, shop or travel.

If Netanyahu continues his policies, even at a higher rate - such as lowering taxes, cancelling port monopolies and challenging the bank cartels - and the global economy continues on its upturn, and the disengagement plan results in a further drop in terrorism, growth will become stronger and more stable.