Analysis: Shaky global economy should push Israel to become more competitive

Though Israel’s financial system and conservative banking regulations helped it navigate 2008- 2009 global financial crisis, there is only so much a small, open, export-dependent economy can do.

By
August 25, 2015 06:36
2 minute read.
Stock market

A pedestrian looks at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo.. (photo credit: REUTERS)

 
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Israel was reminded this past week that no matter what it might do, its economic destiny is not entirely its own.

The declines in the Tel Aviv Stock Exchange followed those in global markets. Its poor showing in the second quarter was mainly the result of a dragging world economy, which has kept Israel’s shekel strong, its exports less competitive and the markets that buy them lukewarm.

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Though Israel’s financial system and conservative banking regulations helped it weather the storm of the 2008- 2009 global financial crisis relatively well, there is only so much a small, open, export-dependent economy can do.

When China, which is pushing Asia ahead of the US as Israel’s second-largest regional export destination, is suddenly slowing, there is only so much Israel can do.

When Europe is growing at such a languid pace – and the fate of the euro is constantly put into question as Greece skates to and from the brink of disaster – there is only so much Israel can do.

The Bank of Israel has matched the near-zero interest rates of its main trading partners, and like other countries is waiting tensely to see when the US Federal Reserve will raise its own rates. It is considering taking unprecedented steps, testing the waters of negative interest rates, wading into Quantitative Easing. But there is only so much it can do (a feeling, by the way, that many central banks are experiencing, as the possibility of a global slowdown returns before they manage to reload their weapons).

All of that is not to say that there aren’t plenty of steps Israel could and should be taking to improve its economy.



Quite the opposite. The prospect of a shaky global economy should push Israel to become more competitive, slash its red tape, tear down its monopolies, reduce its industry-protecting tariffs, and to boost its education, research and development spending. It will shine that much brighter on the global economic stage if the government takes this opportunity to make things better.

But even if Israel takes all these steps, there will always be weeks like this week, and quarters like the last quarter, to remind us that there are limits to what the economy can achieve alone.

In such times, Israel’s economy is like a perfectly good kite on a windless day.



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