Possible concerns for Israeli economy in summer of 2012

The Easter and the Passover festivals are about to hit the Holy Land, as the economy of 2012 seems to be bumbling along.

  • Tourism in February was already 6% up on 2011, and an open-skies agreement has just been signed with Europe.
  • The economy as a whole is scheduled to grow by 3.1%, a fine stat considering the general global outlook.
  • The Economist magazine has just surmised that Israel’s leading banks have reasonable core capital levels, and these are being ramped up further yet.   
  • Gas and oil exploration continues to show positive results, and the additional  expected tax revenues should be significant.

So what’s the catch? In a word, “inequality“. It is not just that the rich are getting richer, as Israel’s GDP consistently outperforms most others in the OECD. The poor miss out time and again, as they are held back by several factors all coming together: –

  • Tax reforms not invoked, as promised
  • De-facto monopolies (and thus high prices) in the food sector, where the less well off spend much of their budget.
  • Stringent controls on the importing of fruit of vegetables, again resulting in high prices
  • Regulation in the housing market, forcing up the price of land and rented accommodation.

2011 was a year of social protest in Israel. Hundreds of thousands took to the streets. Some changes were made. However, it is questionable if they are just a start or a final result. Politicians are using new catch phrases to appeal to the voters, but it is doubtful if they can convert words into actions.

Sooner or later, Israel’s new wealth of the past two decades must find a path to the third estate. It is time to tackle these complex social divisions, while the problem is still manageable.

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