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(photo credit: Ariel Jerozolimski)
Bank of Israel Governor Stanley Fischer again tweaked his economic growth forecast for 2005 to 4.6% on Thursday, while predicting growth of 4.3% in 2006 and hinting that it could be even faster.
"These are conservative numbers, although historically we are not excessively optimistic," he said during a speech at the Prime Minister's Conference for Export and International Co-operation, which was organized by the Manufacturers' Association of Israel and the Israel Export and International Cooperation Institute.
The Bank of Israel has changed its forecast a number of times this year, initially saying that gross domestic product (GDP) would grow 4% and then cutting the figure to 3.5% before raising it to "above 4%" and now settling on 4.6%.
The Bank amended its outlook after the release of GDP figures for the first quarter in May and then for the first half in August. The latest figures show that the economy grew 4.9% between January and June, while the Central Bureau of Statistics believes that GDP will grow 5.1% this year.
Fischer said it was "good news" that the general economic recovery hadn't been accompanied by a recovery in investment, which he expects will take place next year. Predicting that investment would climb 4.5%, he said such growth would strengthen the economy further.
"I expect extra recovery, including in the building sector, and this will give an added spurt to the economy," he said.
However, Fischer warned that the government must maintain its fiscal discipline and continue to reduce debt, which is around 100% of GDP.
"It's very important because we have massive debt. We are in a league which we share with Italy and it's not a good league to be in," he said.
"When you have huge debt and you get into recession you can't use counter-cyclical fiscal policy. We need to be in a situation where fiscal policy can be used as a tool of government."
Fischer also stressed that the Bank of Israel must achieve its inflation target of 1%-3%.
"I regard inflation that is too low the same as inflation that is too high," he said.
To make the Bank's operations more transparent and accountable, Fischer has been working on proposals to update the Bank of Israel law, which dates back to 1954. Should it pass, the law would grant the Bank greater independence to implement its policies and lead to the creation of a Monetary Committee and an Administrative Council with external members. Fischer expects the proposals to be sent to the government within a couple of weeks.