Stanley Fischer at press conference in Jerusalem_311.
(photo credit: Reuters)
The Bank of Israel will again cut its growth forecast for 2012 Governor Prof. Stanley Fischer told the Knesset Finance Committee Wednesday. He added that the situation in Europe had improved slightly in terms of decision-making, but warned that if countries quit the Eurozone, "there will be a big mess."
"The Israeli economy is in good shape," said Fischer. "We have a lot more freedom of action than European countries and even the US, because of the positive things done by governments. If we act properly, we'll be able to successfully deal with the risks facing us. What is success? Avoiding a recession. But there is no doubt that what is happening around us will affect us, and we won't be able to grow as we once did. It's impossible not to be affected by the global economy."
:OECD slashes growth forecasts; PM: Cut spending
Fischer said, "We're already seeing exports falling, and this will continue. For the first time, we're seeing a small current accounts deficit. The deficit will be small; it's not too terrible. But it's a change. We're also seeing a drop in tax revenues. The OECD forecasts 2.9% GDP growth
for the Israeli economy. Our last forecast was 3.2%, and we're working on a new one, which will probably be lower. How much? We don’t know, but it will probably be around the OECD forecast."
Fischer said that the situation in Europe "is very worrying". The unemployment rate is Spain is 23% and 18% in Greece, which he says "were the unemployment rates in the US during the Great Depression of the 1930s"
MK Amir Perez (Labor) interrupted Fischer to ask him about unemployment rates in Scandinavia, and Fischer replied, "A country like Sweden has a very responsible macroeconomic policy. If we were like Norway, which receives a substantial part of its income from oil, it would be wonderful. When we see the bond yields, we realize that there is a problem. At an interest rate like 30%, which Greece has, you cannot manage the budget, because a third of it goes to repaying debt. Even at a 7% yield, such as in Italy, you cannot manage the budget."
Fischer said that the euro can survive, but only if "very hard decisions
are made". He said that Germany and France want the Eurozone to
survive, adding, "There have been some more optimistic signs lately,"
including the meeting between French President Nicolas Sarkozy and
German Chancellor Angela Merkel from which they emerged smiling.
hard decisions are made, warned Fischer, the Eurozone will break up.
"If countries begin to quit the bloc, it's not certain what will happen.
What is certain is that there will be a big mess." Fischer declined to
give odds on the survival of the Eurozone, saying, "If they succeed, it
won't be easy for them. Some banks will go bankrupt - that's for sure.
Some countries will also go bankrupt."