Stanley Fischer 311 R.
(photo credit: REUTERS/Baz Ratner)
The year that begins today isn’t likely to bring much economic joy. This,
despite the seemingly upbeat news about the lowest jobless rate (5 percent) in
decades. But other indicators are quite bleak, as corroborated last week by Bank
of Israel Gov. Stanley Fischer.
Analysts are united in predicting a
marked slowdown in our economy’s growth. During 2011 it was a robust 4.8%. That
was quite phenomenal considering the almost universal stagnation elsewhere in
the developed world. But for 2012, the BOI forecasts 2.8% growth only. Other
assessments are far gloomier.
The core concern are the recessions
overseas. The drearier the situation abroad, the less the demand for whatever we
have to sell by way of goods and services. Downturns are contagious.
Slumps beget slumps and eventually must affect us. In time, this might mean
higher unemployment here too.
The probability that fallout from foreign
recessions won’t necessarily immediately manifest itself here offers scant
consolation. Israeli households will begin feeling the pinch long before the
euro zone’s aftershocks start affecting our personal finances. There are much
more immediate troubles ahead.
For one thing, slower growth means less
tax revenue. Lower exports won’t be the only contributor. The real-estate
slowdown, for instance, substantially shrinks the state’s income straight off.
Not only does this make balancing the national budget more difficult, it makes
it increasingly more difficult for the Treasury to loosen its purse strings at a
time of a loud populist outcry for more largesse for social causes, to say
nothing of having to cope with likely escalated security emergencies.
instability on the Egyptian border is already palpable and the Syrian/Lebanese
front may be next to heat up. The Iranian threat continually casts its
dark shadow. One way or another, these heavier defense burdens will fall on the
taxpayer. They may not materialize in the form of higher direct taxation but we
will pay more.
There’s already talk of raising value-added tax by 1
percentage point, in keeping with OECD recommendations.
are due to rise dramatically – much more in some locations than in others, but
they will be significantly higher everywhere.
Water prices will also go
up, at first for agriculture and industry. As usual, these hikes are quickly
passed on to the consumers.
Gasoline at the pump will cost 10 agorot more
per liter as of today, but the biggest wallop of all will come from the Israel
Electric Corporation, which is after a mammoth 30% hike in electricity prices.
The IEC cites frequent pipeline blasts in Sinai and subsequent cutoffs of
Egyptian natural gas supplies, making these utterly unreliable at this point.
Replacement fuels, besides producing more pollution, cost between three and 10
times more than gas from south of the border.
We will pay the price not
only directly via our electricity bills but also by paying more for whatever we
consume, as the manufacturers’ and retailers’ higher overhead expenses are
invariably borne by us.
Indeed, major food suppliers and supermarket
chains are already signaling that price cuts put in place as a result of last
summer’s “cottage-cheese rebellion” are about to be discontinued. The so-called
“special sales” aren’t slated to be renewed.
When all the aforementioned
are tallied, we’re left with increased expenditures in stark contrast to
stagnant, if not diminishing, incomes. This means radically less disposable
income for most Israelis.
Less disposable income exacerbates recessionary
dynamics. With less money to spend, we buy less. Lower consumption reduces
demand. This in turn diminishes corporate takings further, triggering a vicious
Some elements in this prognosis are plainly out of our control.
Israel cannot avoid the ill-effects of global recessions, nor can it inoculate
itself against the mounting existential dangers around us.
But what can
be controlled is corporate greed. Companies that cannot resist the temptation to
raise prices will find themselves losing by undercutting their consumers’ buying
power. Instead of making do with lower profit-margins, they’ll face outright
They shouldn’t be surprised if specific-product boycotts
reappear. The Israeli consumer is no longer the passive glutton for punishment
of yesteryear. That’s a lesson worth memorizing.