Karnit Flug 370.
(photo credit: REUTERS)
Bank of Israel Governor Karnit Flug expects Israel’s impressively low
unemployment rate to rise in the coming year, she said Tuesday at the Calcalist
Capital Markets Conference.
Falling export pulled GDP growth in the third
quarter down to 2.2 percent, a figure Flug called
Moderate global growth figures and the expectation that
a full percentage point of Israel’s projected 3.6% growth for the year comes
from natural gas, which does not create jobs in the short term, the jobless rate
will likely come up from its 20-year low of 6.1% in the third
“An assessment of the composition of the labor market shows that
growth in the number of employed persons is concentrated in the public services,
while employment in the business sector has been at a standstill for a long
time,” Flug said.
The bank is trying to balance several conflicting goals
with its monetary policy. It has brought the interest rate down to 1% to help
slow the shekel’s appreciation, which hurts exports, and spur growth. However,
the low rate also increases demand for housing, which has become too expensive
for many Israelis in recent years.
Long-term economic effects of monetary
policy are also important factors, Flug said.
“It is important to note
that our foreign- exchange policy takes the longterm economic forces into
account, and we are acting to give the business sector time to adjust to the
trends derived from these forces,” she said.
Speaking earlier in the day,
Finance Minister Yair Lapid reiterated his belief that Israel could again grow
at levels of 5% annually for the next decade. The disappointing recent figures
were not representative of Israel’s economic path, he said.
“I know that
in the last quarter there was a drop in exports that led to reduced growth, but
this is not a trend,” Lapid said at the Sderot Conference. “We already have more
updated data that shows that in September exports grew at 5%, and in October
they grew another 6%, so the growth numbers are coming back.”
The OECD on
Tuesday lowered its forecast for Israel’s growth this year to 3.7% from
“The fiscal consolidation programmed in the 2013-14 budget should
not be diluted, despite favorable surprises in revenues and spending growth,”
the report said, adding that the interest rate should slowly come back up once
the global recovery gains steam.
It also revised global growth
projections downward by just under a half-percentage point for both this year
and next, to 2.7% and 3.6%, respectively.
Flug called upon the government
to create a strategic plan that would grow the economy it in a way that reduces
“The main challenge facing the Israeli economy over the long
term is to succeed in creating inclusive growth,” she said.
would “support a higher standard of living for all sectors and a reduction of
poverty and inequality in the distribution of income,” Flug said. It would help
lower-skill workers find jobs as the economy changes, she said.
important that, in formulating its strategic plan for the coming years, the
government focus its policy such that we progress in this direction,” Flug said.
“Inclusive growth will contribute to strengthening the cohesiveness among
various population groups and within the groups themselves.”
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