The direction of Israel’s economy – two anecdotes

Yesterday’s posting about concerns ahead for Israel’s economy turned out to be particularly timely.

On a more generic level, it seems that Israel is not the only economy that weathered the 2008 global turndown, but is having troubles second time round. As I read today in the Wall Street Journal, Brazil, India and China area all facing economic slowdown. Of course, if these three do not perform, then they will drag Eurpope and America down with them, showing their strength above that of Israel.

The second point is Israel specific. I commented in my blog about the lack of leadership from Jerusalem. Sver Ploscker in the Yediot newspaper observed that the budget deficit, which has been around around 2%, is now going to rise officially to 3%, despite protests from the Bank of Israel. However, as most tax rises will be delayed for electoral reasons, 4% is probably the likely outcome.

Yes, this is bound to put mroe pressure on interest rates. And the plans of the Finance Ministry to cut government spending by around 650m shekels this summer will look inadequate even before they are implemented.

However, this “cutback game” is simply what I write – a game. For example, the government has just announced that it will allocate an additional 58 million shekels – found from who knows which reserve – to support the upgrade of an institute of higher learning. It happens that the establishment is politically aligned with the Finance Minister himself.

More short term political capital achieved, whilst risking future economic stability. At Israel does not have any external threats to deal with!!!! 

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