"The Israeli economy is in pretty good shape. The situation of the global economy is more serious, especially in Europe. We can successfully get through this period if we run the economy properly and responsibly," said Governor of the Bank of Israel Prof. Stanley Fischer at a special press conference today.
"The situation in the US is reasonable; not good, but there is growth and there is no risk that the US will enter a double dip recession. The US is projected to have 2-2.5% growth in 2012. That's not impressive, but it's growth, and fairly good growth," Fischer said.
"The economic forecasts for Europe have not been cut by much since the beginning of the year, but if you look at the forecasts - less than 0.5% growth - it may not be a recession, but it's definitely not a desirable situation."
As for Israel, Fischer said, "The situation of Israeli exports is worrying. Our balance of trade current accounts is expected to slip into a small deficit of just over 1% next year, which is a change from 2003-10."
As for the housing market, Fischer said, "There is a lag in the data we're receiving. We're about to receive updated figures from the Central Bureau of Statistics on home prices and rent. There is suspicion that home prices have begun to stabilize, and maybe even to fall. It should be noted that the latest figures show an annualized 10% rise in prices, which is a lot less than the annualized 20% rise we saw last year. It is necessary to stress, however, that prices are still rising."
Fischer predicts 4.7% GDP growth for Israel in 2011 and 3.2% growth in 2012. "In our opinion, the slowdown in the growth rate began in the second quarter, when we had quarterly growth of 3-3.5%. We must recognize the facts: we're entering a slowdown in growth, although not in activity. We're not in a situation of negative growth; we're quite far from that. It's just that we've gotten used to the rapid growth rates over quite a few years."
As for yesterday's profit warnings by Bank Leumi (TASE: LUMI), First International Bank of Israel (TASE: FTIN), and Israel Discount Bank (TASE: DSCT), Fischer said, "Despite the lower expectations, it's important to note that the banks still expect to post profits for the third quarter. There's no risk to the stability of the banking system."
Fischer concluded by warning against populism and stating that measures were needed to deal with the slowdown. "We must strengthen the soundness of the economy and keep the budget framework. We must not increase expenditures or raise taxes. In other words, let the automatic stabilizers do their job. If the deficit target rises to 3% or even higher - that's OK; it's not a big problem. If growth continues as now, the deficit will be a bit over 3%.
"We must not capitulate to populism. When an economist says 'populism', he means economic measures that are welcome by the public in the short term, but cause long-term damage. Populism kills economies. We must be ready to respond to negative developments by applying whatever policy tools are necessary."
As for monetary policy, Fischer said, "We have an interest rate of 3%, and we can lower it if necessary. We also have a special plan, prepared during the last crisis, which we can execute in cooperation with the Ministry of Finance in a crisis scenario.
"If we understand the risks in the global economy, and act responsibly, we all - both the public and the private sector - can successfully deal with the risks we face. The protesters had no organized economic plan, but the government turned to a very respected man - an extraordinary man - Manuel Trajtenberg, to propose solutions. It is a very responsible report that keeps the budget framework."
Published by Globes [online], Israel business news - www.globes-online.com - on November 15, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011