"The unemployment rate will rise, but won't reach the levels seen in 2001 recession. Nonetheless, an additional 50,000 unemployed can be expected in 2009, which is a significant and very worrying number," Bank of Israel Research Department director Dr. Karnit Flug told “IDF Radio" (Galei Zahal) today.
Flug added, "We have plans to minimize unemployment." She also noted that experience showed that salaries would probably be eroded as the recession puts downward pressure on wages.
When asked when Israel will emerge from the recession, Flug replied that that depended on the global economy. "If global growth resumes during the second half of 2009, as international financial institutions predict, this will be reflected in the Israeli economy, and we'll see an improvement."
As for measures being taken by public financial institutions to minimize the recession, Flug, like Governor of the Bank of Israel Prof. Stanley Fischer, says, "Monetary policy is a main way to reduce unemployment and the recession. That is why the Bank of Israel has cut the interest rate so aggressively. This lowers the cost of credit." She added, "The government's ability to act through fiscal policy is currently limited."
Flug struck a conciliatory tone towards the commercial banks. "On the basis of figures we've recently obtained, the cost of credit has been falling since November. It's necessary to take into account that a substantial proportion of loans are linked to the prime rate, which is linked to the Bank of Israel interest rate, so cutting the Bank of Israel interest rate trickles down directly to the public."
Published by Globes [online], Israel business news - www.globes-online.com - on January 29, 2009
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