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Bank of Israel Governor Stanley Fischer sounded a somber note at a meeting of industrialists yesterday: economic growth is slowing substantially due to external events. "Two threats loom: slow-down and inflation," he said. "We must decide on the correct dosage to treat inflation, while considering that the real economic situation could worsen rapidly."

Speaking at the meeting held in honor of French President Nicolas Sarkozy's visit to Israel, Fischer praised the government for its fiscal discipline.

That said, the Bank of Israel published upbeat macro data yesterday: economic activity continued to expand briskly in January-April, exports and imports jumped, and jobs were created. GDP continues to grow apace as private consumption booms. Private consumption during the first quarter of 2008 grew at an annual pace of 14.1%, the central bank said.

The governor ascribed the shekel's strength to foreign investment in Israeli companies, and to a new phenomena: Israelis are investing locally rather than seeking investments abroad.

"It is, in a sense, a vote of confidence, but there are repercussions for the economy," he said. Reflecting on the dissonance between the economic and political situation in Israel, he added: "We all hear that the government is weak, but it has managed to maintain very good fiscal discipline."