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"There's no doubt that we've emerged from the recession," Benjamin Netanyahu declared yesterday after hearing that the economy had expanded at an annualized rate of 2.7 percent during the third quarter of 2003. It's true that the economy shrunk (by 1.7 percent) during the previous three-month period and that the year-end growth figure will be very low, about 1 percent. But this didn't stop the finance minister from announcing: "The economy that was on the verge of collapse is now on its way up."

These remarks do not reflect great political wisdom. After all, Netanyahu is still in the midst of a difficult battle to change the face of the economy. If the recession is over and everything is so rosy, why continue with the painful budget cuts, public-sector layoffs and salary reductions? Netanyahu's declaration that the economy is already recovering will not help him in his negotiations with the Histadrut.

The figures themselves are indeed surprising. Why do they suddenly indicate economic growth at a time when the media is full of dire news about layoffs, factory closures and bounced checks? The answer lies in a 24.2 percent jump in exports, driven by a devaluation of the shekel and improved economies abroad that boosted demand for Israeli goods.

The second positive economic indicator is the 6.2 percent increase in private consumption during the third quarter. This is clearly a result of the cease-fire (hudna) that lasted for more than half of this three-month period (from the beginning of July through August 20). The respite from terror attacks unleashed the suppressed demand to get out to stores and shopping malls.

On the down side, there was a disturbing 10 percent decline in investment during the third quarter. It's clear that sustained growth requires a steady influx of investment. The sharp jump in economic figures from one quarter to the next also indicates that we are still far from real growth - despite the finance minister's declarations.

During his term as prime minister, from 1996-99, Netanyahu made similar pronouncements about a transition to economic growth. But per capita growth remained around zero during his term, due to the abrupt transition from negotiations and relative quiet with the Palestinians to a state of renewed warfare and ever-present fear of terror attacks.

The same problem exists today, but even more so. Per capita GDP now stands at $15,000 - the same standard of living we had in 1995. That is, the economy has backtracked eight years during the three years of intifada.

New research by economic professors Danny Sidon and Zvi Eckstein indicates that even if the global economy and the high-tech sector rebound, there is no real chance of significant economic growth in Israel as long as it continues to be plagued by terrorism. In this situation, the best we can hope for is an annual growth rate of 2 percent, which represents a stagnant standard of living (since population growth is also about 2 percent) - instead of the 5 percent growth rate that Netanyahu, or any other finance minister, should be aiming to achieve.