Will the global recession hit Israel soon? Or perhaps it's already here? Bank of Israel Governor Stanley Fischer stated in the central bank's inflation report, released last week, that, "There is currently a high level of uncertainty concerning future economic developments in Israel and there are serious risk factors that could affect both inflation and the level of economic activity, related mainly to the ongoing global financial crisis and the economy's proximity to full employment."

The chief economist for Harel Insurance Investments and Financial Services and former chief economist of the Finance Ministry, Dr. Michael Sarel, has more unequivocal answers. "Yes, we're in a recession," he said recently.

"The numbers for the second quarter of 2008, which will be released in two weeks, will be okay, although not as good as those of the first quarter. Growth will be all right, but in the third quarter and later on - in the fourth quarter and in 2009 - there will be a major drop in economic figures. The growth rate will be low, in my opinion 2%-3% in 2009. Maybe it will be above 3%," Sarel continued, "but by the same token it could also be below 2%."

The reason for the slowdown, Sarel emphasized, is not unique to Israel: "In the United States, growth in the last quarter of 2007 was low, and U.S. economic figures affect the entire world. The main cause of the recession in Israel is exports. We are hurt twice with imports - once by the decrease in world trade and again by the high appreciation of the shekel in the past year. Exporters receive fewer shekels for every export dollar. The shekel's appreciation in the past year, and in particular in the past half year, will begin to have an effect only in the months to come. We know that most of the effect of appreciation will be felt after about three quarters," Sarel said.

In his opinion, "2009 doesn't look good in all respects. The uncertainty regarding the global economy is great. The growth forecast for Israel, 2%-3%, is fluid. So far the slowdown in the American economy hasn't hurt America's high-tech sector. The result is that our high-tech firms are in a very good situation. They haven't been hurt by the decline in world trade. If the U.S. recession does hurt the tech sector, we'll be hurt, too, and the effect of the global recession on Israel will be greater," Sarel concluded.

Dr. Karnit Flug, manager of the central bank's research department, told TheMarker on August 3: "The data of the past several weeks indicate the start of a recessionary process in Israel. We at the bank never used the expression 'economic crisis'; we have talked about 'economic slowdown.' At one stage we thought it would come at the start of 2008. The figures for the first quarter of the year were better than expected, with a high growth rate of 5.4% in annual terms," Flug said.

"However," she continued, "in my opinion, for the rest of the year the economy is expected to enter a significant recession. In June we updated the bank's growth forecasts of 3.2% in 2008 and 3.4% in 2009 to 4.2% this year and 3.1% next year. The meaning of the forecast, against the background of high first-quarter growth this year, is a significant slowdown for the remainder of the year," Flug said.