Fuggedaboutit! (Hamodia, September 12)
The traditional thing to do as the New Year approaches is to hope and pray that the coming one will be a “good” one. Ask most Jews how they would define a “good year” and, ever-cautious, they will grudgingly agree that “better than last year” might be acceptable. However, on that basis, and with respect to the Israeli economy – fuggedaboutit.
The outgoing year of 5774 was decidedly less good than its predecessor, which was also less good than the one before. True, none of the past three years counts as “bad” in economic terms, especially not when compared to most European countries – but the deteriorating trend is clear. As for 5775, it’s sad to have to say this before it has even arrived, but it is going to be born with serious defects. The good news is that these can be treated; the bad news is that they probably won’t be in time to save 5775 from being another declining year. The best practical hope is that the year will end in better shape than it began, and thereby provide a firm base for a strong improvement in 5776.
In terms of macro-economic performance, the Israeli economy peaked in 2011 and began sliding gently downhill. However, that change came after eight years of strong growth, beginning in 2003 when the economy began to emerge from a severe slump caused by a ‘triple whammy’ – the intifada at home, the global recession and the ‘tech-wreck’ that ended the dot.com boom. By the time the global financial crisis hit in 2008, the Israeli economy was expanding so strongly that it was hardly affected by the rest of the world’s tsores and was able to rebound after a few months’ weakness.
But all good things come to an end, especially if they are only very good for some people and much less so for others. The wave of mass demonstrations that swept the country in the summer of 2011 led to changes in policy, notably tax increases on both corporations and individuals, which signalled a change in priorities toward greater social equality. Meanwhile, the recovery from the global recession was anaemic, with Europe in particular plunging into deep crisis.
That’s why the last three years have seen the Israeli economy gradually lose momentum, and this has been most apparent in the export sectors which had been driving growth. The rise in exports slowed and then turned negative – hardly surprising, perhaps, since the steady rise in the value of the shekel against the dollar and euro made Israeli goods expensive, where demand was anyway weak and competition fierce.
By the middle of this year, even before the recent fighting in and around the Gaza Strip, many of the key indicators were flashing orange or red. Exports were falling sharply and investment drooping, pushing growth to the lowest rate in years. Inflation, other than in the housing sector, was negligible or actually negative – showing that demand was weak in the domestic economy as well as overseas. The only remaining positive feature was that the budget deficit was at its lowest since 2008 – but the heavy military expenditures caused by the war have punched a massive whole in the budget forecasts and ensured that both 2014 and 2015 will see much bigger deficits than had been planned.
The Treasury and the Bank of Israel have very different ideas as to how to get the budget back under control – and the government will have to decide eventually which approach to take. Meanwhile the debate has been repeatedly delayed, as various ministers and rival parties pull in different directions. However, it currently seems that none of the party leaders wants to see the government fall, so the probable outcome is a messy compromise which may merely push the really tough decisions off for another year.
That’s why 5775 is doomed to be another “worse than last year” year. Yet there are grounds for optimism, not just vague hope. The shekel has finally begun to fall, especially against the dollar. That will help exports to start growing again. The larger budget deficit and the recent cuts in interest rates, to almost zero, should both act as stimuli to prevent the economy sliding into outright recession. If the borders remain quiet – admittedly, a big ‘if’ — then by this time next year things should be back on track. That, at least, we can hope and pray for.