The most important development in the Israeli economy over the last year was
not the widely reported deterioration in the budget, but the massive deterioration in the trade balance.
By PINCHAS LANDAUTrader looks at market graph 311 (R)(photo credit: REUTERS/Tony Gentile)
Let’s take the opportunity provided by the end of the Jewish year to look at the key developments in Israel over the past year. For the overwhelming majority of Israelis – and virtually all foreigners – the key developments are the ones defined by the media in terms of how many column inches and air minutes were devoted to them. By this reckoning, it is pretty obvious that the number one topic on the Israeli agenda is the threat of a nuclear Iran, and that is closely followed by the “tension,” or “clash,” or “confrontation” – or whatever other term you choose – between Prime Minister Netanyahu and President Obama over what to do about this threat.In the narrower sphere of the Israeli economy, it is equally obvious that the dominant issue is the rapidly widening budget deficit and how to deal with that – whether by raising taxes, and if so, which ones and by how much, or by cutting spending, and if so, in which areas and by how much.However, there is an alternative view of the outgoing year, which is very different. It starts with the premise that the importance of any given topic is not determined by the amount of attention given to it by the media; if anything, the relationship is inverse: the more media hype, the less an event or an issue is likely to be truly important from a long-term perspective. By implication, that means that what most people think is important is irrelevant, because their “views” and “opinions” are effectively dictated by media brainwashing, which turns them into “sheeple.”Thus, for example, the most important development in the Israeli economy over the last year was not the widely reported deterioration in the budget, but the massive deterioration in Israel’s trade balance, as imports soared and exports actually declined. This resulted in the country’s current account swinging into the red, for the first time in almost a decade. The huge deficit on trade in goods actually hit a new record in August – over $2.2 billion in a single month – but the data revealing that, published this Wednesday, went almost unnoticed.The reason that the trade deficit is more important than the budget deficit can be very simply framed: The budget and any deficit in it involves redistributing money between Israelis, which is a matter over which, by definition, the Israeli government has control, whereas trade and any deficit in it is between Israel and the rest of the world, over which the Israeli government has no control.Although the trade deficit is a serious problem – and even potentially disastrous if allowed to go untreated – the good news is that it is very likely to prove a short0term one. That is because the main factors causing it are the steep rise in the price of oil on international markets and the delay in bringing into production Israel’s new-found natural-gas fields. These have resulted in an increase of $2.8b. in the country’s import fuel bill in the first eight months of this year, compared with the parallel period in 2011 (when they weren’t exactly giving oil away free). Once the gas starts flowing from Tamar in mid-2013 (if all goes well), the import bill will start shrinking. There is also the problem of shrinking exports, which is a much more complex issue, but it is amenable to action on the part of the Israeli government and the corporate sector.The more dramatic and much more positive developments of the year were in the area of foreign relations, really geopolitics, but they were also related to oil, gas and trade. One of these was the brief visit of newly reelected Russian President Putin – his first foreign foray after his return to the presidency, and a sharp contrast to the continued absence of Obama after almost four years in office. Putin came to talk oil and gas with the emerging new energy power in the Eastern Mediterranean; that’s Israel, so get used to the idea. Israel and Cyprus present a potential competitive threat to Russia’s dominant position as the source of Europe’s natural gas, and Putin wisely wants to achieve some degree of cooperation as early as possible.That’s why it’s hardly surprising that 10 weeks later, the Russian giant Gazprom is rumored to be interested in buying a stake in the Israeli fields. Whether that is good for Israel, and under what circumstances, is a valid subject for national debate, but what is not debatable is that Putin hastened here, even as his ally Assad was struggling for survival next door. For Russia, business is business – and there’s no room for sentiment.The Chinese are even less prone to sentiment. The upheaval in Egypt poses a serious potential threat to trade via the Suez Canal – and Europe, even in its weakened state, is China’s biggest market. That drove the Chinese government to propose, and the Israeli government to accept, that China would build a rail cargo link from Eilat to Ashdod. That represents a major commitment that goes far beyond the few billion dollars involved. It is another element of the rapidly changing Middle Eastern reality – in which Israel’s relative position is far stronger than could have been imagined just a few years ago.landaup@netvision.net.il
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