TLR 173: Steady as She Goes

December 7, 2015

Israel is probably the only place left in the Middle East about which the word ‘steady’ can be used. How long that might remain the case is anybody’s guess – but for the moment, ‘steady’ is valid both for domestic politics and for the economy. The latter is the focus of this issue, which is limited to discussions of the key areas in C: Macro-economics.


The peg to the discussion is the passage, very belatedly, of a budget for 2015-2016. Given the government’s one-seat majority in the Knesset, this was always going to be a difficult budget to get through, so achieving that goal is more significant for this government than would normally be the case. Indeed, it is quite possible that this budget will be the only one that the current government legislates – but, given the pace of developments in the region in recent months, any assessment of the outlook for 2017 is mere speculation. At least with a budget in place and the main economic variables showing fairly clear trends, as will be discussed in this issue, a fact-based outlook for 2016 is not merely necessary, but actually also possible.


This issue, therefore, is about macro-economic policy and performance — and hence primarily of interest to macro-economists. But not only. Just as economists have finally realised that they cannot churn out model-generated forecasts without taking into account geo-politics and its impact on whatever country or region they are relating to, so too the geo-political discussion of the Middle East cannot ignore the impact of economics on the policies of governments and countries – and perhaps Saudi Arabia is the best example of that. Events over the past year have called into question the most basic assumptions about Saudi Arabia, in part due to ‘classic’ Saudi issues related to the royal family and the succession, but mainly because of the impact of sub-$50 oil on the country’s finances and, ultimately, its stability.


In Israel, the situation is almost the reverse. Many commentators have been, and continue to be, at a loss to understand how Netanyahu personally, and Likud, remain the dominant players in the political arena. It is easy to enumerate the reasons why their time should have come to be shunted aside. After all, following the upheaval in the Canadian elections, there are few leaders or parties in the democratic world to match the longevity of Netanyahu/ Likud in power – if we ignore the US presidential system, which will allow Netanyahu to outlast Obama, there is now only Merkel and, with good longevity prospects, Cameron.


What Netanyahu, Merkel and now Cameron share are strong labour markets, rising employment and low or falling unemployment. That may not be a panacea for all other problems but, other things being equal, it puts and keeps a leader ahead of the game. I continue to maintain that, barring a massive personal scandal, only a major change in the economic climate can undermine Netanyahu’s position. As long as the Israeli economy remains in “steady as she goes” mode, he and Likud should be safe.




C: Macro-Economics

    a)Fiscal policy flips from constraint to expansion

    b)Monetary policy beached

    c)Budget specifics

    d)Volatile data mask underlying stability


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