Israel's Economic Future Is Gray and Threatening

It's true that growth in Israel is high, unemployment is low and there is a balance-of-payments surplus; but still, the Tel Aviv Stock Exchange is falling.

While the global economy falters, Israel's economic situation is actually improving. Just recently the Bank of Israel adjusted upward its growth prediction for Israel this year to 5.2 percent, and is even forecasting a decline in unemployment to an all-time low of 5.8 percent.

But in the rest of the world, the economic climate is much more pessimistic. In the United States, Wall Street is declining because investors are worried about discouraging economic data. The government deficit is huge, unemployment is high, manufacturing is low and data showing a low rate of new-home sales is a great cause for concern. Federal Reserve Chairman Ben Bernanke said last week that the recovery in the United States was not proceeding smoothly.

In Europe, fears are rising over Greece's unending debt crisis, which radiates to every country in the European Union. Even predictions about China are quite gloomy, and there are fears of an export slowdown in the country that has become the world's growth engine.

It's true that growth in Israel is high, unemployment is low and there is a balance-of-payments surplus. But still, the Tel Aviv Stock Exchange is falling. Since the beginning of the year, the TA-100 Index has dropped 9.5 percent, a trend that contradicts the Bank of Israel's optimistic predictions.

The explanation for this is the stock exchange's sensitivity as a tool for predicting the future. Things are good right now, and short-range predictions are rosy, but Israel is very dependent on the world economic situation, and the Israeli economy is built on exports. If the United States and Europe go into a recession and demand for products and services declines, Israeli manufacturers will suffer severely.

There are also fears about an economic crisis in September against the backdrop of a Palestinian declaration of statehood at the United Nations. That's a new situation that could lead to a new intifada and international sanctions against Israel by labor unions, companies and countries that are already opposing the Netanyahu government's policies.

Even if the economic situation is good now, the future looks gray and threatening. The government should therefore prepare for the possibility of a world economic crisis and take the initiative on the diplomatic front.