Daily Israel Report

Bank of Israel: An Economically Healthy New Year

The Bank of Israel sees a healthy new year for the economy. Inflation to fall. Interest rate steady. Economy to outstrip growth in US.
By Tzvi Ben Gedalyahu
First Publish: 9/27/2011, 12:37 PM

Stanley Fischer
Stanley Fischer
Flash 90

The Bank of Israel predicts a healthy new year for Israel’s economy. Inflation will fall, the interest rate will be steady, and economic growth, although slower than in 2010, will be a robust 4.7 percent for 2011 and 3.2 percent in 2012, far more than the meager 1.8 growth expected in the United States this year.

The Bank, headed by Stanley Fischer, noted “the strength of the Israeli economy, which is reflected in the high levels of growth and employment to date, the robust domestic banking system, the high level of foreign currency reserves, the downward trend in the government debt burden, and in Israel's raised credit rating.”  

Inflation, measured by the Consumer Price Index, rose to 4.7 percent the past 12 months but is expected to decline to 3.2 percent over the next 12 months.

The interest rate, which was cut by a quarter of a percent Monday evening, will remain the same, with a possible slight decrease, the Bank predicted.

Employment continues to be on the upside, and the current jobless rate is 5.5 percent, compared with a stubbornly high of 9 percent in the United States, where the number of unemployed actually is thought to be as much as twice as high because so many people simply have given up looking for work and are not registered as jobless.

The Bank noted that Israel’s credit rating, already solid, has been upgraded even more.

Worldwide, growth expectations are not rosy for Western countries. The debt crisis continues to plague Greece, and S&P last week cut its credit rating for Italy, with a negative outlook.

“There was growing concern of the European debt crisis spreading to the banking system, and amid that, credit ratings on large banks in the United States, France, and Italy were cut,” the Bank of Israel stated.

“The more severe global slowdown is reflected in a slowdown in the growth of real activity in Israel, and in particular in the weakness of goods exports,” it added.