OECD slashes growth forecasts; PM: Cut spending

Netanyahu vows to respond "responsibly and cautiously" as OECD cuts Israel's growth forecast to 2.9 percent.

economic outlook graph economy money 311 (photo credit: Stockbyte)
economic outlook graph economy money 311
(photo credit: Stockbyte)
Prime Minister Binyamin Netanyahu said Monday the government should behave “responsibly and cautiously” in dealing with economic challenges, as the Organization for Economic Cooperation and Development slashed Israel’s 2012 growth forecast to 2.9 percent.
Speaking at a Likud faction meeting Monday, the prime minister said the economy faced three central challenges.
“The shake-up of the world economy means the government must restrain itself from overspending,” Netanyahu said. “If we don’t, we’ll pay a price.”
The second challenge was “increasing social needs,” many of which would be addressed via laws based on the Trajtenberg Report on Socioeconomic Change. The third was regional instability, which, he said, was “expressed every day in the political results in the states surrounding us” and meant greater security challenges and a need for more resources.
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'Israel must manage economy responsibly'
“Balancing these elements requires decisions that are not easy,” Netanyahu explained.
“We must continue to behave responsibly and recognize Israel’s needs.”
The OECD on Monday downgraded the 2012 economic growth forecast for the 34-nation bloc to 1.6% from its May forecast of 2.3%. It cut Israel’s 2012 growth forecast to 2.9% from 4.7% six months ago. Israel’s 2013 growth forecast is now 3.9%.
In comparison to its fellow developed economies, Israel still appears to be in a relatively strong position. Only six OECD member states are expected to grow faster than Israel in 2012, including one euro zone economy – Estonia. As a whole, the 17-nation euro bloc is now expected to grow at just 0.2%, with Italy joining Portugal and Greece in recession, and France, Germany, Spain and the Netherlands growing by 0.6% or less.
“Advanced economies are slowing down and the euro area appears to be in a mild recession. Concerns about sovereign debt sustainability in the European monetary union are becoming increasingly widespread,” the OECD said in its report.
“Recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption if not addressed.
Unemployment remains very high in many OECD economies and, ominously, long-term unemployment is increasingly common. Emerging economies are still growing at a healthy pace, but their growth rates are also moderating.”
Finance Minister Yuval Steinitz said on Channel 10’s evening news broadcast that the government was “preparing for all possibilities,” acknowledging that if the euro zone collapses, as many are predicting, “the whole world will be affected badly, including us.”
But, he added, if the budget is cut at the beginning of next year, it would only be a moderate “adjustment.”
Steinitz repeated comments he has made numerous times in recent months that as head of the Treasury, his job is to ensure the maintenance of a high level of foreign investment and economic growth.
“I protect the Israeli economy in order to protect Israeli society,” he added, saying he seeks to ensure Israel doesn’t end up with a situation similar to Spain, where 50% of youngsters can’t find work.
Netanyahu met with Bank of Israel Governor Stanley Fischer Monday specifically to discuss the global economic turmoil.
Netanyahu said after the meeting the Israeli economy would continue to grow because of responsible budget management, saying: “See what has happened to the European countries that increased their expenditures without restraint – they have become caught up in one of the most severe crises ever and in mass unemployment.”
Later, the central bank announced it was reducing the December interest rate by 0.25 percentage points to 2.75%. The bank said the European debt crisis and “growing concern over its potentially strong impact on the global economy” was one of the main considerations behind its decision.
Also on Monday, Labor Chairwoman Shelly Yacimovich said Netanyahu’s approach to the new economic crisis would have a “deep” and “damaging” impact on Israeli society, and would mean jobs were lost and less money was spent on essential needs such as health.
“What is Netanyahu’s solution? Another across-the-board budget cut?” she said.
Yacimovich told a faction meeting, “What conservatism, what ’80s-style Thatcherism, once again the fat cat will make us all skinny.
This is simplistic, a big mistake. It’s the opposite of what the public wants.”