From boom to bust in 2011?

A 7.8% growth rate certainly sounds like an impressive figure, and something to smile about….However anyone who analyses all the components of growth in the economy, must reach the conclusion that we are on the way to something far from happy, and that there is more than one reason for any finance minister to express concern, rather than boast of a situation that recalls economies that have recently gone swiftly from boom to bust. The picture that emerges from the growth figures released today is not one of a healthy economy, but the picture of Spain in 2007.

Thus wrote Avi Temkin a few days ago, one of Israel’s leading economic commentators. And with some degree of ironic timing, Israel’s President, Shimon Peres, is commencing today a state visit of Madrid.

Temkin may have a point. Factor in world food prices on the up and up. And instability in the Arab world is almost certainly going to see a rise in oil prices, which will have negative economic implications globally. However wonderful the statistics, the reality may be otherwise.

But Israel is not alone in facing an uncertain future.

The US stock market has doubled, but so what? As somebody commented:

The reason is money printing, period. Essentially what is happening right now is the Fed is printing money and its being handed out to people to spend and buy assets. That has propped up asset prices. When the money printing ends, what is left are horrible fundamentals of a US economy with a decent probability of collapse.

If these analysts are accurate, it will not just be Israel that is in a pickle. If America were to sneeze, just imagine what kind of cold Europe would catch, with Britain and others still feeling fragile after the credit crunch. 

By the end of this week, we will know if the Bank of Israel will raise interests rates sharply. This will be one of the first signs of central authorities beginning to act in order to prevent an all-too-familar mess.

Explore posts in the same categories: Business, Israel

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