Israel already on negative growth path for 2003

Closing the gap between actual growth and the 1% Ministry of Finance forecast will require a further NIS 10 billion budget cut.

The decline on US stock exchanges, especially Nasdaq, and the global high tech crisis have affected the Israeli economy more than the conflict with the Palestinians.

The figures show that the global high-tech crisis and the Nasdaq slide since August 2000 have cost Israel 2.9% of GDP, amounting to 65% of the total loss of growth in the past 30 months. The chief causes were a fall in foreign investments, particularly in Israeli start-ups.

The conflict with the Palestinians, and the accompanying terrorism, have reduced growth by 1.6% of GDP, amounting to 35% of the total loss in growth over the past 30 months. This loss was mostly in tourism, revenue from which dropped by over 40%, and in exports to the Palestinian Authority.

Senior economic minister officials in Jerusalem said the loss of GDP since the outbreak of the conflict with the Palestinians and the beginning of the global high-tech crisis 30 months ago was worse than reported. A Central Bureau of Statistics analysis shows cumulative minus 4.5% growth in this period. Excluding start-ups, GDP fell only 1.6%.

Business output sank a cumulative 9% in the past 30 months, and per capita growth 8%.

Growth at the beginning of 2003 is negative. The Central Bureau of Statistics analysis indicates growth of minus 0.7%, following minus 1% growth in 2002. This means that the starting point for 2003 is worse than all the Ministry of Finance’s previous forecasts, which are based on positive 1% growth. The gap between actual growth and the official target requires a further NIS 10 billion budget cut in order to meet the government 3% budget deficit target.

At the end of January, the Central Bureau of Statistics will revise its national accounting estimates for 2002, based on actual growth figures for the fourth quarter of the year. The 1% GDP decline forecast for 2002 assumed positive 0.5% growth in the fourth quarter. If no growth is posted in the fourth quarter, however, the 2002 growth estimate will be revised to minus 1.1-1.2%.

Negative growth in the fourth quarter will drag growth for all of 2002 down to minus 1.3-1.4%.

Published by Globes [online] - - on January 2, 2003

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