Treasury Chief: GDP Growth May Slow to Just 1% by Year-end

This year the department predicts that GDP will grow by 4.2% but for 2009 it sees the pace decelerating to just 3.5%.

How fast is Israel's economy growing? At the Economics and Research Department of the Finance Ministry, they say the pace is slowing. This year the department predicts that GDP will grow by 4.2% but for 2009 it sees the pace decelerating to just 3.5%, says Eldad Shidlovsky, senior Economics and Research Division manager.

"During the first quarter of 2008 the economy grew by 5.6% [in annualized terms], and in the second quarter, it grew by 4.2%," Shidlovsky said yesterday. "We believe that in the third and fourth quarters the pace will drop to about 1%." Of course, the treasury could be missing on the downside, Shidlovsky hastens to add: "If [the pace] is higher, and the chances are not small that it will be, then growth in 2008 will be greater than 4.2%," he elaborates.

Shidlovsky, who holds a doctorate in economics from New York University, is responsible for macroeconomic analysis at the Finance Ministry as well as for tracking external developments and assessing their impact on Israel. His conclusions and recommendations carry great weight at the ministry.

Since Israel has an open economy, says Shidlovsky, it will be buffeted by external events in the global marketplace.

Macroeconomic analysts have pointed out that inflation in Israel, which is running well above the Bank of Israel's price stability target range of 1% to 3%, is due in no small part to "imported" inflation, through the sharp global increases in commodity prices from rice to oil. Israel's economy has weathered events this year in relatively good shape, Shidlovsky says: The pace of GDP growth has outstripped that in the rest of the West. Nor did Israel suffer from a real estate bubble, and Israel's banks were relatively unscathed by the subprime crisis.

"My personal feeling is that we'll be less affected by the present crisis than we were in 2000," Shidlovsky says. Today's trouble is essentially financial in nature whereas then the problem originated in a high-tech bubble, he elaborates. Israel was badly hurt then because its economy is oriented towards tech exports.