07/17/2012 23:30–It is becoming increasingly apparent that Israel is entering an economic recession. Therefore, it should come as no surprise that senior officials from the Finance Ministry, the Prime Minister’s Office and the Bank of Israel have called an emergency meeting slated for next week to discuss the deteriorating situation.
Let’s hope that our economic leaders will wake up to the somber reality of a major slowdown and take the necessary steps, one of which is to take Bank of Israel Gov. Stanley Fischer’s advice and backtrack on the recent cabinet decision to expand the budget deficit target for 2013 from 1.5 percent of GDP, or NIS 14.5 billion, to 3% of GDP. At the very least, the government should heed Fischer’s warning, made publicly last month at the Israel Democracy Institute’s Caesarea Conference, and refrain from raising the deficit beyond 2.5% of GDP.
A slew of recent macroeconomic data show that we are in an economic slowdown. Deflationists have pointed to June’s cost of living index – down 0.3% against analysts’ forecasts for a slight rise – and warned of an imminent state of deflation. Consumer price decreases are often a symptom of a recession or at least a slowdown. Idle workers are willing to accept lower wages and businesses stuck with growing inventories or facing a sharp drop in demand are willing to sell products and services at lower prices.
In contrast, inflationists are warning that the slowdown might cause a sharp rise in prices soon as the central bank makes more money available to encourage growth. Either way, the situation is not good…Read More>>