Economic Report: All Systems Up

Bank of Israel report on Israeli economic progress in Jan-Apr 2011. Bottom line: Economy continues to grow, housing prices still on the rise.

Hillel Fendel , | updated: 3:21 PM

Indicators up
Indicators up

The Bank of Israel has released a report on progress in the Israeli economy between January and April of this year. Bottom line: Economy continues to grow, housing prices still on the rise.

The main points of the report were these:  
  • The Israeli economy continued to grow in the review period - January to April 2011. Specifically, investment, private consumption, imports and exports all grew rapidly.  
  • The unemployment rate fell to 6%, among the lowest in the past 25 years, and the employment situation continued to improve.          
  • Demand for apartments and activity in the construction industry continued to grow. The steps taken to reduce the demand and increase the supply of houses have still not made a sufficient impact, and house prices continued to increase rapidly, although at a slower pace than in 2010.
  • Inflation exceeded the target throughout the review period, particularly due to prices of housing, transportation, and food.
During the period January-April 2011, the GDP gap was positive, the economy approached full employment, and imports, exports, and investment rose rapidly. GDP grew rapidly in the first quarter as a result of rising demand, which encompassed investment and consumption of both current and durable goods.

The unemployment rate was 6 percent in the first quarter, a similar level to that prevailing prior to the outbreak of the economic crisis, and among the lowest in recent decades. The continuing improvement in employment was also reflected in an increase in the number of full-time positions and a decrease in the number of part-time positions. The participation rate in the labor force decreased slightly in the first quarter, but remained high.

The demand for apartments and activity in the construction sector continued to expand in the review period. The number of mortgages increased, apartment prices grew more rapidly than rental prices, and the number of apartments demanded grew. The number of building starts and investment in residential building increased.

At the same time, the shortage of skilled workers in the construction industry continued, and building completions slowed down. The steps taken to reduce the demand and increase the supply of apartments have still not made a sufficient impact, but it appears that the rise in the interest rate has reduced the demand for apartments for investment purposes. Housing prices increased by 14% over the past year, as opposed to 20% for 2010 as a whole.

Inflation in the review period continued to be high, and exceeded the inflation target throughout the period. Inflation expectations were also high, but approached the inflation target after the Bank of Israel raised the interest rate in April by a surprising 0.5 percent. The high inflation rate was impacted mainly by the rise in prices of privately owned apartments, transportation and communications, food, and fruits/vegetables.

Outside Israel, the economy of the European Union grew during the review period, particularly in the wake of rapid growth in Germany, but the unemployment rate remained high. The United States economy grew at a slower rate, as its employment difficulties continued, and no solution seems in sight for the burgeoning budgetary deficit. The debt crisis in European countries continued to cloud the European recovery; the government in Portugal fell and the country has requested assistance from the European rescue fund, and fears of bankruptcy of the Greek government have increased.