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(photo credit: Ariel Jerozolimski)
Prophets of doom may make dire predictions about the global economy, but Prof. Stanley Fischer, the Governor of the Bank of Israel rates Israel's economic prospects as "quite good."
Speaking on Monday in Tel Aviv to members of the Israel Britain and the Commonwealth Association, Fischer said it has been "an extraordinary year" for Israel's economy. According to preliminary data, the growth rate for 2005 was 5.2 percent.
For several years now, Israel's economy has accelerated annually, he noted, quipping that in Poland when the economy was in a state of decline and economists were asked about it, the reply was that it's worse than last year but better than next year.
In Israel, the opposite is true.
Unemployment has come down steadily said Fischer, and though it is now below 9%, he said "it is still too high."
Part of the good news about Israel's economy is the surplus in the balance of payments - which means that Israel's exports exceed her imports. There is also an influx of capital and foreign investors are flocking to do business here.
"We see them at the Bank of Israel several times a year," he said. Some are interested in the privatization process, but the major interest is in high tech.
On the opposite side of the coin, however, Fischer observed that Israel's growth process over the past 15 years was accompanied by a process of inequality, simply because people with skills progress further.
There is more inequality than actual poverty, he said, because the definition of poverty is income below the median, which is not so much the case in Israel. Income has gone up, with the result that there are extremes between the haves and the have nots, and social gaps have thus increased.
Also impacting strongly on the national economy is the national debt.
Israel is still a country of large national debt. If the national debt is 100% of the GDP, and the government pays 6% interest, this is a large share of the budget, Fischer noted. In fact, he said, "interest is the largest share of the budget after defense."
Yet, for all this, Israel has a stable economy in which investors have confidence. The proof, he said, was seen in the "impressive" market reaction to the illness of Prime Minister Ariel Sharon, which he said, "spoke of the stability and maturity of the economy."
As was expected, the stock market plummeted by as much as 7% in the morning but was down by only 4% by afternoon. What happened to the foreign exchange rate was even more impressive, where Fischer termed a depreciation of 1.5% as "not bad," while a reversal was already seen by the end of the day.
This again speaks of Israel's economic resilience, said Fischer.