DS Apex chief economist Alex Zabezhinsky warns that the unemployment rate is liable to rise, in view of the deterioration in the labor market in February. He says that Prime Minister Benjamin Netanyahu's government cannot continue to raise taxes, which reinforces the fear of a widening of the budget deficit and a change in the attitude of the markets toward the Israeli economy.
In his weekly survey, Zabezhinsky mentions the change in the Central Bureau of Statistics' methodology for calculating the unemployment rate, to bring it in line with the OECD methodology, and which caused a 20% jump in the reported unemployment rate, shocking the Bank of Israel and the Ministry of Finance. "Participation in the labor force fell in the past two months, continuing the trend that began in 2011," he says. "Were it not for the decline in the participation in the labor force, the unemployment rate would have risen in February.
According the Central Bureau of Statistics, using the new methodology, the unemployment rate fell to 6.5% in February from 6.6% in January.
Zabezhinsky says that, in addition to the decline in participation in the labor force, other job figures were negative. "The number of employees fell by 10,000 persons, the number of full-time employees fell by 52,000 persons, and the number of part-time employees rose by 16,000 persons," he says.
Zabezhinsky predicts that the unemployment rate will rise to 7% by the end of 2012. Psagot Investment House Ltd. predicts an even higher unemployment rate by year end - 7.5%.
Zabezhinsky's bleak forecasts for the Israeli economy do not end with the labor market. He believes that the climate of elections and the public's anger at the high cost of living and burden of indirect taxes means that the Netanyahu government will not be able to raise taxes further, and that it will be forced to increase the deficit in the biennial budget for 2013-14.
"The current public mood is full of populism, and taking into account the fact that elections for Knesset are due in 2013, there is a risk that the government will deal with the deviation in the budget by changing its long-term fiscal targets in the budget for 2013-14 (if it decides on a biennial budget). The government is liable to opt for the easy fix to deal with the budget, instead of budget cuts and tax hikes," says Zabezhinsky. He warns that raising the deficit target is liable to increase the yields on Israel government bonds, and could even affect Israel's credit rating.
Published by Globes [online], Israel business news - www.globes-online.com - on April 2, 2012
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