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Call that a revolution?

Just two or three months ago, we were promised a revolution. Bibi had pushed through his economic program, the government raised $750 million on the international markets, and we were told that foreign investors were storming the beaches of Tel Aviv. The Central Bureau of Statistics even announced that the economy had grown by 3.8 percent in the first quarter of 2003.

And the stock market, we mustn't overlook the stock market. It leaped and gamboled and left everybody, as usual, goggling with shock. The "experts" explained that the stock market sees two steps ahead of everybody else. It and it alone sees the turnaround around the corner.

Then came the heavy heat of July and August. The thermometer relentlessly inched up, tempers frayed and the hot air started to seep from the bubble that had developed during the second quarter. Then Tuesday came some more figures from the Central Bureau of Statistics, showing a steep slide in GDP during the second quarter.

How could the economy reverse from growth to contraction in less than three months?

l The Central Bureau of Statistics data fluctuate. They are random. Sometimes the figures are more "noise" than actual trend.

Just as the first-quarter figures did not really portray actual growth, the second-quarter figures do not demonstrate a major retreat. While GDP is headline news, the more interesting factoid is that of business turnover, which is the basis for persisting economic growth.

In the first half, business turnover increased by a tiny 0.2 percent, which is a change for the better compared with the contraction last year, but can hardly be called a significant improvement.

l The first-half GDP data were biased upward because of a steep climb in government expenditure. That "growth" spike created by heavy government spending will extract a heavy cost, in the form of a spiraling deficit, higher taxes and increased foreign debt.

One reason behind the euphoric wave that characterized the second quarter was the American decision to grant Israel $9 billion worth of loan guarantees. These guarantees are the reason the government can afford to run up a deficit amounting to 6 percent of GDP.

If not for that promise, the government would have had to double its fundraising, which would have prevented long-term interest rates from dropping.

l Consumer spending shot up in the second quarter, which is the most important point of light in the marketplace this year. But it isn't clear whether the increase is a real upswing, or a one-time spike triggered by the end of the Iraq war and expectations of the hudna and road map. Note that real wages continue to erode, and that unemployment is rising. Private consumption may well sink back in the third quarter.

The terror attack in Jerusalem Tuesday night could savage the national mood, and consumption in parallel, which would become evident in the third quarter figures.

l The main reason behind GDP's reversal from growth to contraction, from the first quarter to the second, is exports. They shot up in the first quarter and sank back in the second.

Has there really been such a reversal in exports? Of course not. Export figures are always highly volatile, and cyclical in nature. Major one-time deals can skew the whole picture. More importantly, the first quarter figures were affected by the dollar's high exchange rate at the start of 2003, while the second quarter figures were smashed by the shekel's appreciation.

Even though exports usually attract most of the attention, imports are worth a glance too, especially investment assets. Experience teaches that this is a key indicator of future growth. It may be the only datum that gives room for optimism in the last few quarters, but here too, caution is in order until the trend becomes clear.

And the stock market? If you place your trust in its prophecies, you are in for a pounding. Its spike in the second quarter reflects mainly the drop in Israel's and the region's risk premium. From there to genuine economic recovery, the road is long.