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As the capital market battles stormy weather and sensational news is the order of every new day, real economic developments are moving at an equally frenetic pace. Just last month the government approved the state budget for 2009. But treasury captains realize that some of its basic assumptions are no longer valid.

The budget for 2009 was based on the treasury's assumption that Israeli GDP would grow 3.5% next year. The Bank of Israel predicted growth of 'just' 3.1%. In recent discussions between the finance ministry and central bank officials, the Bank of Israel is sticking to its earlier forecast. But the treasury has adjusted its outlook: now some (not all) of its officials think growth in 2009 may be less than 2%. In other words, that economic growth is significantly slowing down.

The difference between 3.5% growth and 2.5% will have a profound effect on the budget and the economy: it spells NIS 7 billion less revenues from taxes. In the event that economic growth drops to just 1.5%, tax revenues will fall by NIS 14 billion. That is a daunting figure by any account. It means deep budget cuts, which could well reach into the most tender parts of the budget - including welfare, defense and education.