Bank of Israel President Stanley Fischer presented the bank’s 2008 summary report on Sunday at a news conference in Jerusalem. He noted that although the economy is slowly coming out of its downturn, he predicted that layoffs will continue until at least 2010.
“We see now the financial markets beginning to recover … but there is always a delay between what happens in the financial markets and in the real market … We expect the downturn to continue, but hopefully for not too long,” Fischer told President Shimon Peres as he presented him with a copy of the report.
The bank estimates that 2009 will still be a difficult year in which the economy will experience a 1.5 percent loss. In 2010 the economy will begin to recover, and experience an estimated growth of 1.0 percent.
On the other hand, Fischer warned that the employment rate will be last to recover. The bank expects the unemployment rate to rise to 7.7 percent in 2009 and 8.3 percent in 2010 before the economic turnaround begins to create more jobs.
Fischer called 2008 “one of the most interesting years in modern economic history” and said that despite the depression, Israel had achieved much in the previous five years. Unemployment and poverty were down, and the economy grew at levels equivalent to those in other Western countries.
The report also presents the bank’s estimate that despite the financial crisis, inflation will remain at a nominal level of 1.0 percent. On the other hand, it warned that the public deficit will grow as tax revenues shrink. Whereas the deficit currently stands at NIS 7 billion, it will jump by the end of 2009 to NIS 42 billion. Fischer warned that any tax cuts will have to be carefully thought through, in a veiled message to Prime Minister Binyamin Netanyahu, who has promised to cut taxes by the summer.
Peres accepted the report on an upbeat note. “I believe that as compared with other countries, we are above average … From a perspective of bank regulation, we are on the right path … If other countries are beginning to see sparks of recovery, we will see flames, and that should encourage all of us,” he said.
The President also revealed that he had done his homework on the economic crisis. “I was amazed to read that the biggest experts in the world have concluded that there is one factor that affects the economy more than any other – people’s moods,” he said. “In Israel we have to make sure not to sink into depression.”