Beer in Israel among world's most expensive
"If we go into recession, the deficit will rise to 6-7% of GDP, and then the government will have financing difficulties."
"Following the new Bank of Israel Law, today we are working in a much better decision making framework at the bank, both for interest rate decisions and for administrative decisions, which are no less important, because we have the Supervisory Council headed by Dan Propper," Governor of the Bank of Israel Stanley Fischer said at a Finance Committee session today discussing the central bank's budget for 2013. "I see how important it that someone keeps a check on us from outside and I see the effect it has on us."
During the session, Fischer commented for the first time on the surprise decision yesterday to cut the central bank's interest rate by 0.25%: "We are seeing a slowdown, though not great, in economic growth, industrial output, and in exports, which are not growing rapidly. We don't see ourselves getting into a recession, but in order to encourage demand, we lowered the interest rate. We want to give a push to growth, and that is what we did."
Athough Fischer ruled out the word "recession", he warned, "For nearly a decade we have been among the leaders for growth in the Western world, and we must continue that way. But at present we are close to full employment, and we have a deficit around 4% of GDP that's very high. If we do go into recession, the deficit will rise to 6-7% of GDP, and then the government will have financing difficulties. Then it will be much harder to take the necessary steps on the budget, and so it will be preferable to take them straight after the elections."
On the fiscal deficit that the next government will have to deal with, the governor said, "According to the spending ceiling, we will be about NIS 15 billion above the ceiling permitted to the government. It's hard to cut an amount like that, and it may be necessary to raise taxes. There's a big problem here and it won't be easy. It was very important that they decided on a tax hike beforehand, because otherwise they would not be able to raise them this year. The action taken in 2003 was very tough, but on the basis of it we were able to grow rapidly until the great crisis, and to get through the great crisis in better shape."
On the raising of the Bank of Israel's growth forecast, Fischer explained, "The change in our growth forecast for the coming year has two bases. One is what happens to the economy without gas. Here, we see a slight decline in growth, from 3% to 2.8%. This is a continuation of a gradual fall in the rate of growth, and we don't know when this will end. The second basis is the inclusion of gas production in GDP. The result is that this boosts growth to 3.8% next year. You have to understand that this 1% GDP rise is based on a small number of people that operate the drilling platforms. It's not a matter of very many workers. This won't affect employment in the short term in the way that 1% of GDP generally affects employment. It's not like regular growth."
Fischer expressed pessimism about the world economy, saying, "It's clear that the Europeans have convinced us that they will do everything to ensure that the euro doesn't break up, but meanwhile the European economy has entered a recession. Not a huge recession, but a recession. In addition, we are waiting to see what happens with the US and the fiscal cliff. Meanwhile, the global economy is problematic, the volume of world trade has fallen, and that is not good for the Israeli economy."
The governor also commented on fears that the low interest rate might heat up the housing market even more, and said, "As long as we build at a rate of 40,000 housing units a year, the situation is reasonable. In the third quarter of 2012, we fell to a pace of only 8,000 units, and at an annual rate that works out at just 32,000 housing units, and that's low. We need to work on the supply side. It isn’t that the government hasn't tried. There were reforms and attempts, but it hasn't yet succeeded and we need to persist with it."
Renovation, new banknotes
Renovation of the main building to the tune of NIS 177 million and the printing of a series of new banknotes costing NIS 150 million enlarged the budget of the Bank of Israel for 2013, as presented to the Knesset Finance Committee today, to over NIS 1 billion.
The Bank of Israel claims that excluding the renovation plan and the banknote printing, two one-time items that have not actually been budgeted but are recorded as "permissions to commit", the budget was actually cut by 5%, and amounts to NIS 731 million, compared with NIS 740 million for 2012. In 2010, the central bank's budget was only NIS 612 million (NIS 128 million less).
The bank also says that the renovation work will take at least four years, and that in 2013 the tenders will only begin, so that the actual work will start only in 2014. For the first time, the Bank of Israel budget presented to the public does not include the salaries to retirees item.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
You comment was recieved and soon will be published.
Thank you for posting your comment, which will be reviewed for publication.
Load more comments
Only Scandinavia, Iceland, and Monaco are more expensive, according to "Thrillist."
C'tee proposes spending up to $70m on PM's plane
The Goldberg Committee also proposes a new prime minister's residence and office.
Average Israeli income tax rate among lowest in OECD
Average Israel tax rate has dropped in past 3 years, while rising in most OECD countries.
Gov't opens meat and dairy markets to imports
The government focused on products worth 17% of average Israeli family expenditure.
Israel-Lebanon deadlocked over offshore border
The dispute is delaying publication of an exploration tender for Lebanon's Block 9.
Barclays backs Yair Lapid's policies
"Under Lapid, the government has limited expenditure and increased revenues."
"You can't teach entrepreneurship"
Angel investor Zohar Gilon relies on his own judgement rather than due diligence when selecting investments.
If Rose Fostanes played basketball
Reforms in regulations for foreign caregivers are welcome, but don't go far enough.
Antitrust Authority disappoints on gas competition
The only new company that will compete against Tamar and Leviathan will own less than 8% of Israel's proven gas reserves.
When innovation means a refrigerator
Jamshyd Godrej believes economic development in India must go hand in hand with environmental and social awareness.
Prof. Zvi Eckstein supports NIS 3.30-3.40/$ floor rate
The former deputy Bank of Israel Governor is the first senior figure from the financial system to advocate a floor rate.
2013 boom year for Israeli high-tech
In the first half of the year, there was a 52% rise in demand for mobile and web developers, and salaries are up as well.
Strong shekel forces Israeli manufacturers abroad
Israeli manufacturers tell "Globes" they are losing money due to the current strength of the shekel.
"Ending QE3 will harm the economy"
Prof. Richard Clarida will tell "Globes" Israel Business Conference that the main risk to the US economy is its political system.
Israel offers favorable tax regime for companies
"Globes" and Baker Tilly Israel accountants found Israel's tax benefits are among the most attractive in the West.
Slowdown will worsen
The vested interests that continue to claim that the economy is improving are deceiving the public, says Eyal Horowitz.
Can the US maintain growth after QE3?
Leading economists will discuss "The US: catch 22 the zero interest rate" at the "Globes" 2013 Israel Business Conference.
"The worst could still be ahead in Europe"
Prof. Charles Wyplosz will discuss Eurozone recovery at the Globes Israel Business Conference on December 8-9.
"Let capital pipelines function to full potential"
Amir Bramly argues that limited investment supply is stifling small and medium Israeli companies.
Budget cuts threaten 10,000 defense industry jobs
Senior executives warn many factories are in danger of closing due to the drying up of defense ministry's orders.
Israel faces water surplus
The Water Authority is considering scaling back production at desalination plants.
Global economic trends are disturbing
World trade is not picking up, and only a handful of countries are recovering strongly - but Israel is among them.
Is recovery around the corner?
At the conference on December 8-9, leading experts will examine the prospects for global recovery in 2014.