Text size

The Israeli economy will emerge nearly unscathed from the subprime crisis, says the National Economic Council, a key adviser to the prime minister on economic matters. The council forecasts economic growth of 4% for 2008, only slightly lower than the 4.2% growth the treasury projects in the 2008 budget.

This is a great show of optimism by the council, which is headed by Prof. Manuel Trajtenberg. Other prognosticators in Jerusalem are less optimistic: Treasury Director General Yoram Ariav and Bank of Israel Governor Stanley Fischer have recently said the subprime crisis could cut 2008 growth to just 3.5%.

The council predicts that the Israeli economy will remain strong enough to weather most of the effects of the subprime crisis that are stinging economies elsewhere.

The council points to the high growth and export figures of recent quarters. It notes that only one-third of Israel's exports go to the dollar area, and that exporters to these markets are learning to insure themselves by hedging or redirecting exports to other countries.

The council estimates that Israeli exporters will learn to take advantage of the burgeoning Chinese and Indian markets by transforming the two countries into new export targets. Israeli exporters would thus take advantage of the increasing private consumption in China and India.

The council also noted that the falling dollar is a great benefit to Israeli consumers because of the falling prices of imports.

Indeed, importers have scurried over recent weeks to take advantage of convenient exchange rates, increasing imports. The Alaluf shipping group reports an increase of 15% in imports over the past two weeks, and the warehouses at the ports are full.

But the president of the Manufacturers Association, Shraga Brosh, paints an entirely different picture than the one described by the National Economic Council. Brosh describes the repercussions of the falling dollar as "terrible, and the losses huge".

Negotiations between manufacturers and the government over the establishment of a fund of up to $10 million annually to assist small and mid-sized exporters are being conducted under the shadow of the falling dollar.

"There is no doubt that as far as exports are concerned, the dollar needs to be stronger. When the dollar was trading at NIS 3.6 to the dollar we were talking about export losses of $4.5 billion, so that the situation is far from satisfactory," Brosh said.