Consumer power

2012 unlikely to bring much economic joy; analysts united in predicting slowdown in economy’s growth.

By
December 31, 2011 23:03
3 minute read.
Bank of Israel Governor Stanley Fischer

Stanley Fischer 311 R. (photo credit: REUTERS/Baz Ratner)

 
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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.

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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.

The 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.

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Municipal rates 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 cycle.

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 losses.

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.

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