BoI 2011 report: Economy is in good shape (JERUSALEM POST) By NADAV SHEMER 03/28/12)
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Bank of Israel Governor Stanley Fischer submitted the central bank’s
annual report to the government Wednesday, calling it proof that the
economy performed well in the face of significant challenges in 2011.
“The Israeli economy is in good - if not excellent – shape,” Fischer
said at the official release of the 8-chapter, 321-page report in
Jerusalem. He pointed to relatively high economic growth, adding that
middle class incomes have increased and poverty levels have decreased
in the past few years as jobs have become easier to attain.
Economic growth is forecast to reach 3.1 percent in 2012, the bank
said earlier this week. Fischer pointed out that growth reached 4.7%
last year and the unemployment rate dropped to 5.6% - the lowest
level in three decades.
According to the report, inequality remains higher in Israel than in
most Western nations, although the unevenness of wealth distribution
has stabilized and even decreased somewhat since 2006. It pointed to
a recent OECD report which found that disposable income gaps between
the highest and lowest deciles have expanded since the mid-1980s.
However, it said that the pre-tax income of Israel’s lowest deciles
has outpaced that of the wealthiest half of the population in the
Labor demand continued to grow in the first half of 2011, leading to
notable increases in nominal wages and in the number of paid jobs in
the business sector, the report said. Demand slowed down slightly in
the second half, although the employment rate continued to rise.
Haredi (ultra-Orthodox) male workforce participation grew from 39% in
2008 to 46% in 2011, but the employment rates of ultra-Orthodox men
and of Arab women remain about 15% short of government targets for
2020, it said.
The report called 2011 “a turning point” for the housing market,
explaining that the rate of increase in home prices slowed
considerably to about 4.5% - as compared to the record rate of
increase of 20% at the beginning of 2010. According to the report,
this slowdown was caused partly by the high level of prices - which
reduced the number of potential house buyers – and by acceleration in
the pace of housing starts.
The bank warned the government that it must make policy adjustments
in order to reduce gaps between the expected budget deficit and the
deficits required by laws for the coming years. It recommended “more
rationalized management of the defense budget,” in order to avoid a
repeat situation in which eventual defense expenditure far outweighs
its budget allocation.
The report also addressed last year’s social protests, attributing
their outbreak mainly to the high price of housing, a global rise in
price of commodities, and the process of fiscal consolidation which
began under then-finance minister Binyamin Netanyahu in 2003.
The fiscal consolidation involved a significant reduction in
government expenditure, the deficit and the debt-to-GDP ratio and
contributed significantly to the creation of conditions that
supported the exit of the economy from the 2008 global financial
crisis and put it on a path of rapid growth and low unemployment, the
But it added that some of the steps taken as part of this policy
increased inequality, such as the reduction in National Insurance
social welfare payments that primarily benefit weak sectors of the
population, a slowing of growth in public services expenditure, and
the reduction in the direct tax burden on the top two declines of
Prime Minister Netanyahu said he was pleased with the report’s
acknowledgement of declining inequality. Speaking after being
presented the report by Fischer, Netanyahu said he was encouraged by
the increase in the employment rate of haredi males, and that he
agreed with its assumption that implementing free education for ages
3-4 will improve the situation of working families.
However, Labor leader Shelly Yacimovich called the report
an “indictment” of Netanyahu’s taxation reforms, saying it backed her
claim that the rich had become richer and that the poor and the
middle class had been abandoned. “The state has retreated from its
role as a supplier of education and health services, and those who
have been hardest hit are the workers,” she said. “Only a social-
democratic national path will fix this heavy damage.”
National Student Union Chairman Itzik Shmuli also interpreted the
report as supporting the claim that the government’s economic policy
has widened social gaps and raised the price of housing to unbearable
levels. Given the government’s weak response to the protests, he
added, “the governor’s report becomes not just an analysis of past
policies, but also a prediction for the future - in which there will
be another outbreak of social protests in the coming months.” (© 1995-
2011, The Jerusalem Post 03/28/12)
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