Israel’s economy surprises again

Israel’s economy may be doing better than many of its OECD competitors, but the effects of Europe’s downturn are seeping in on the finances of the Holy Land.

Nevertheless, to the surprise of just about all, the economy for 2q12 grew by over 3%, must better than had been feared. Even more staggering was how this spurt was led by exports as opposed to local consumption.

Well, let’s take that cheer and run with it. The gloom clouds are approaching thick and fast.

  • Budget planning for 2013 is very dodgy, complicated by election politics, weak coalitions within the government, and a defense budget that may need to grow by billions overnight.
  • Sharp changes in commodity prices are about to bump up food basics by 5-10%, a big “no-no” in an election. However, government dilly-dallying over bread and milk prices has seen manufactures suffer unnecessary losses, while consumers moan.
  • A weakening of the shekel against other currencies will result in stronger signs of import-led inflation.
  • And the unions are showing no interest in joining the governments efforts for a revised agreement with employers’ groups.

The road ahead is not simple. The Prime Minister’s time appears to be taken up with the Iran-situation and understandably so. The Finance Minister looks increasingly isolated from his colleagues. The performance of the governor of the Bank of Israel at cabinet meeting showed that he did not appreciate all the nuances of the “defence budget debate”.

In the past decade, Israel’s economy has shown an ability to rise above the troubles of wars, Intifadas and global downturns. Growth has been resplendent. At each juncture, there was a “strong man” in charge. We are looking for such a person today.

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