BoI: In Contrast to Treasury Report, the Economy Is Strong

Israel’s economy is doing better than those of other countries, but the government cannot bow to populism and must not overspend its budget, said Bank of Israel Governor.

Bank of Israel Governor Stanley Fischer called a press conference in an attempt to restore calm on Tuesday after the Finance Ministry stated that the global slowdown had reached Israel in September.

Israel’s economy is doing better than those of other countries, but the government cannot bow to populism and must not overspend its budget, said Fischer. The economy is likely to expand 4.7% this year and 3.2% next year, he said.

Stanley Fischer - Emil Salman - 16112011
Emil Salman

The central bank considers its job to be keeping the economy stable. While the growth figures for 2011 are excellent, they were largely driven by the first quarter, said Fischer. Without the first quarter, growth would have been 3.5%, he said.

“In 2012 we’ll be seeing a slowdown in the growth rate although not in terms of economic activity,” said Fischer. “The economy is still expanding at a rate that Europe could only dream of. Unemployment is low in historic terms, the finance system is stable, foreign currency reserves are high, and we found natural gas. We have assets that can maintain the economy.”

He added, “If we manage to understand what’s going on in the global economy and the risks this creates, and if we behave responsibly in the public and private sector, we can face our risks. The world will influence us, but if we handle ourselves properly we’ll be able to get out of this crisis easily, as we did with the last crisis.”

The government deficit will be a bit higher than the 3% target for the year. “That’s okay,” said Fischer. The deficit is expected to exceed 3% in 2012, too, despite a target of 2% for next year.

Israel’s growth forecast for 2012 − at 3.2% − is very high compared to what the United States and Europe can expect, said Fischer.
He added that real estate prices had stabilized over the past few months and might have even began to drop.

The Finance Ministry reported that the slowdown was most visible in terms of tax collection, exports, the labor market and the capital market. Tax revenues were down 1% in September versus August, and another 1.6% in October. September revenues were 3.8% lower in real terms than those in September 2010, and those in October were down 4.3% versus a year earlier.

From January to October, the state collected NIS 2.6 billion less than it had anticipated. Treasury sources say they fear that figure could reach NIS 4 billion by the end of the year, which would increase the state deficit by another 0.5%.

Exports increased 1.1% between Septemberand August, while imports grew 3.5%, increasing the country’s trade deficit. Exports increased in dollar terms in September, after decreasing nearly every month since April.

Unemployment increased slightly in August, to 5.6%, and the number of people seeking unemployment benefits has been increasing. However, unemployment is still at a historical low. Workforce participation was 57.7% in August.

Manufacturing and services sectors saw revenues drop in September, while retail chains saw theirs jump sharply, said the Finance Ministry.