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The local economy has completely recovered from last summer's war in Lebanon, Macro, the Center for Political Economics, reported yesterday. The Bank of Israel's Composite State-of-the-Economy Index for January 2007 rose 0.9 percent, the report notes, after being suppressed in the war's aftereffects to 0.6 percent or lower between August and November. The fact that the pace of growth in the index is picking up indicates that the economy recovered quickly from the damages caused by the war.

"Despite a deterioration in evaluating the situation of Israel's economy on an international scale during the second half of 2006, as compared to the first half of 2006, because of the war," the report stated, "expectations for the next half year are positive."

Macro forecasts economic growth of 4-5 percent and 2 percent inflation in 2007. "Especially high global economic growth also supports the high growth forecast for the Israeli economy," the report asserts.

Socio-economic areas did not see real improvement, save for lower unemployment, according to the report. Income distribution gaps remained high. The report concludes growth has yet to be translated into a real reduction in the scope of poverty.

"After six years of cutting back public expenditure in social areas," the report observes, "the improved economic situation can certainly serve as a tool in the hands of the government for reducing poverty and income distribution gaps." Macro cautioned that without a serious plan for attacking these problems it would be impossible to see an improvement in poverty and wage gaps in 2007 or 2008.

Macro Director General Roby Nathanson commented that the economic status index, which hit a low point on a scale of one to nine in 2002, Israel's economic rating has steadily improved. The only significant setback came during the previous three quarters and was related to expectations of the war's effect on the economy. However, he added, expectations for growth rise from quarter to quarter, which is consistent with the growth data the country is currently presenting.