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Following the economic headlines for several days running could make a person dizzy. On one hand, there is an unending stream of negative data - rising unemployment, falling real wages, declining tax revenues. On the other hand, there are positive items such as the sharp rise in consumer spending in July, or the manufacturers' prediction of higher domestic sales and higher investments in the third quarter. All of this raises the question: Is Israel still deeply mired in the longest recession in its history, or is the economy beginning to emerge from its slump?

It turns out that it is not only the layman who finds himself bewildered by the contradictory data. Professional economists and analysts are also having difficulty putting their fingers on the economy's pulse. A report issued by the Bank of Israel's research department earlier this week offers a good example of this confusion. "Economic developments in the first half of 2003 testify to a slowdown in the rate of decline of economic activity, and perhaps even to stabilization at a low level [of activity]," the report said.

When the deputy director of the research department, Dr. Michel Stravchinsky, was asked to clarify this sentence, he smiled and replied that diagnosing the economy today was much harder than it was a year ago. Then, he said, there were no positive signs and that it was clear that the situation was grim. But today, though the overall picture is still not good, there are some positive signs.

"The best thing one can say today is that for the first time in the last three years, the state of the economy is a puzzle," he said. "Until December 2002, there was no puzzle; it was clear that the economy was deteriorating and gross domestic product was declining steadily. But in the first half of 2003, there are both positive and negative data."

Though falling wages, rising unemployment and a restrictive fiscal policy that curbs demand are all still there in the background, there is one positive factor now that did not exist in previous years - the lull in the fighting that is boosting confidence in the economy. This has been reflected, among other things, in the stock market, which is currently 36 percent higher than its February low, despite an 11-percent drop last month.

"When there are terror attacks, it directly affects consumption," explained Stravchinsky. "People don't go to restaurants; they don't go to malls. But when the trend is toward calm, consumers believe that their incomes will rise at some point and they can, therefore, go ahead with all kinds of purchasing decisions that they had previously postponed."

The sharp rise in imports of cars and appliances in July, reported earlier this week, may be a reflection of this improved consumer mood. Imports of durable goods totaled $125 million in July - up from $104 million in July 2002, and $108 million in June 2003. There was an especially noteworthy surge in car imports: 9,819 cars worth $96 million were imported in July - a 23-percent increase over the same month last year.

Eitan Rub, director of the Customs and VAT Authority, which publishes this data, said that this was the first time since mid-2001 that imports of durable goods had risen compared to both the previous month and the same month of the previous year. He attributed the increase to the improved mood caused by the cease-fire that has spurred people to go out and buy.

July's splurge contrasts sharply with both 2002, when private consumption rose a mere 0.1 percent for the year as a whole, and the first quarter of 2003, when private consumption plummeted 7.0 percent.

The Bank of Israel has devised an index - the "S," or state of the economy, index - to try to measure the economy's health. The index, a weighted average of data on industrial production, retailing revenues, exports, imports and employment has been steadily declining for a long time. Over the last year, however, the decline has been led by the poor data on retailing revenues, which are a measure of private consumption. Thus, the July data on durable goods might be seen as a positive sign.

"At the minute, we do not dare to say that the economy has emerged from recession or that the turnaround has arrived," responded Stravchinsky. "In order to be able to say that the whole business is behind us, there must be a steady rise in consumption. In other words, the July figures must repeat themselves in the coming quarters."

Most of the large commercial banks were even more pessimistic. "Anyone who says the recovery is beginning is talking nonsense," said one senior banker. "There is a very sharp decline in domestic demand; investment is falling; private consumption is falling; disposable income is falling; and the Finance Ministry's budget-cutting measures also have an impact. A rise in car imports does not indicate a change in the trend of domestic demand. When will the economy emerge from recession? When exports and import replacements grow."

The CEO of another bank added that he saw no chance of an economic recovery unless the central bank started cutting interest rates more rapidly. "It is inconceivable that there should be complete price stability when we are mired in a deep recession, while our trading partners have inflation rates of 3 percent," he said. "Interest rates must be cut more quickly. It's not written in the Ten Commandments that rates can only be changed once a month... Lowering interest rates would signal to the business sector that a change is underway."

Most economists agree that a continued cease-fire would lay the groundwork for an economic recovery. But since they also agree that the government's budget cutting will continue in 2004, any recovery is liable to be a slow one. And if the diplomatic process hits an impasse and the cease-fire ends, the economy will find itself right back where it was in 2002, when there was no puzzle at all - because the picture was unrelievedly black.