Facing new risks, economic growth set to continue

Israel's economists remain confident about growth outlook despite the uncertainty created by the likelihood Sharon will not return to office.

Although concerned over the political future of the country, Israel's leading economists and analysts remain confident about the growth outlook for the country's economy despite the cloud of uncertainty created by the near certain likelihood that Prime Minister Ariel Sharon will not return to office. "We have moved from a situation of certainty and a fairly predictable election outcome to anybody's guess. We are in an open field right now," said Joseph Wolf, an analyst at UBS. Wolf added that whatever form of coalition government was created, the two main questions would be: Can it maintain economic stability and a continuation of fiscal policy? And, Who would the newly elected prime minister bring in as finance minister. Citigroup's manager in Israel, Gus Felix, offered reassurance that, whatever Prime Minister Ariel Sharon's condition, the firm believes Israel's economic growth will continue. "We are calmly viewing the unfolding developments in Israel and see no reason to alter our support or our commitment to continued growth," Felix said in his response to the news of Sharon's severe health condition. Similarly, Daniel Rapaport, an analyst at Leader & Co, expressed confidence in the strength and ability of the economy to overcome the interim period before and after the elections. At the same time, however, they see greater uncertainty and risk over the question of how the government will be formed. Shlomo Maoz, chief economist at Excellence Nessuah, voiced concerns over the forming of a coalition government with small parties. "If until Wednesday, we saw the prospects of a solid government with Kadima and a continuation of fiscal policy, we are now in a situation where we don't know who is going to win the elections," he said. "The best would be to have a coalition of the three big parties rather than going back to the bad days of an unstable coalition government with small parties - a situation which might shake fiscal policy." As Sharon had been strongly supported by the US administration, which had played a key role for the country's stability, a big question mark remains over whether that same administration will support a newly elected Israeli leader. Another fear from a fiscal perspective previously uttered by analysts would be a situation where the Labor Party under Amir Peretz wins the most seats in the Knesset. The status and future of the Kadima party, the frontrunner in March 28 elections, had been very much dependent on Sharon himself and his absence is viewed by some as a reason for potential failure of Kadima - to the gain of Amir Peretz, leader of the opposition Labor Party, who in recent polls had failed to reverse his party's fortunes. "If Kadima won the leadership this would be good for the economy. Kadima has two and a half months to prove itself and regain the public's support. My guess is that they will now be able to win around 30 seats rather than 40, according to previous polls," said Leader's Rapaport. If Kadima fails to win support, Rapaport added, we might go back to the classical Likud versus Labor scenario. Nevertheless, the analyst remains confident about the continuation of fiscal policy. On Thursday, the Governor of the Bank of Israel Stanley Fischer spoke with Acting Prime Minister and Minister of Finance Ehud Olmert. Both agreed that Israel's macroeconomic, fiscal and monetary policies would continue, thereby calming nervous investors. They emphasized that cooperation between the Bank of Israel, Ministry of Finance and the government would continue as usual.