Text size

The Bank of Israel is predicting that the Israeli economy will start to recover from the effects of the global financial crisis in the second half of 2009, at least in terms of economic growth.

Yesterday the central bank published its Inflation Report for the third quarter, saying that because tax revenues were dropping, it expects the government deficit in 2009 to run higher than previously expected. However, a temporary increase in the deficit shouldn't impair Israel's economic stability or the public's confidence, the central bank writes.

Meanwhile, speaking at the Prime Minister's Conference for Export and International Cooperation yesterday, Bank of Israel Governor Stanley Fischer hinted at more interest rate cuts to come - after his unscheduled half-percent cut on Tuesday. He dismissed the idea of government coming to the rescue of businesses short of cash.

"It's very easy to suggest intervention in the market," Fischer said. "But one has to think whether intervention is necessary and whether it actually contributes to the economy." Discussing the slide in the corporate bond market, the governor added: "The fact that a company borrowed during the good times in the past doesn't require intervention by the authorities to help it today, when the times are bad. As long as the market is functioning properly, which it is, intervention would be undesirable."

This is a time for level-headedness, Fischer said, not a race for solutions that look easy but wouldn't do any good, or might even harm Israel's long-term economic prospects.

It is true that Israel's economy will slow in the near future, especially if the global economy deteriorates to the point of recession. But, the governor stressed, Israel has strong points in its favor: Its financial system is stable and its growth and employment rates remain high. However, steps can be taken to ease the pain, he said, hinting at one: more rate cuts.

'Roll up your sleeves'

One manufacturer said he isn't waiting for handouts. "Roll up your sleeves - stop waiting for government aid and start to export," exhorted Eitan Wertheimer of Iscar. Manufacturers should take care of themselves, he said: The government doesn't have money, it has a budget. "I see cucumbers growing in the garden whether the government is there or not." On the financial crisis, the pithy businessman said: "If people put their money into a casino in lieu of a bank, the results may be surprising."

Meanwhile, over here the public is taking its money out of the "casino" and putting it into the banks. In the last four months, fixed-income deposits at the banks have increased by around NIS 20 billion, rising to NIS 520 billion. Most of the shift happened in September and October, as capital markets around the world tanked.

The figures include deposits by households and companies as well.

Unlinked deposits increased by NIS 13 billion in those two months, while linked deposits increased by around NIS 7 billion.

In their flight to safety, the public generally showed distaste for deposits linked to foreign currency, say industry sources.