07/29/2012 22:49–A number of negative indicators have pointed to a coming economic slowdown and the urgent need for fiscal discipline. The economy has been hit hard by Europe’s economic meltdown.
The Europeans make up Israel’s single largest export destination. And with Greece, Italy, Spain, Portugal and Ireland dragging down the more stable economies of Germany and France, it is not surprising that Israeli exports are hurting. Compounding the problem is the stagnation of the US economy and slower growth rates in China and elsewhere in the Far East.
In June, the trade deficit (adjusted for seasonal influences and not including ships or diamonds) was $1.85 billion, the largest since January. Looking at the entire first half of 2012, exports as a proportion of imports dropped to just 67.5 percent, from 76% in the same period last year and 83% in the first half of 2010. And weaker export is plaguing all economic sectors from hi-tech to low-tech to traditional industry. Hi-tech in particular, which at one point accounted for more than half of export revenues, now compromises 46%.
The sharp drop in exports is one factor contributing to the depreciation of the shekel against the dollar.
And the depreciation of the shekel will increase inflationary pressures. Unemployment will inevitably rise as well, as the global economic slowdown is felt locally.
Unsurprisingly, the Central Bureau of Statistics downgraded its GDP growth estimate for the first quarter of 2012, to an annualized 2.7% from 3%, and even this might be overly optimistic.
At a time when the economy is slowing, Prime Minister Binyamin Netanyahu’s government has instituted several major spending increases. The minimum wage was raised and public sector wage hikes were given to interns, nurses, social workers and contract workers.
The budget for higher education was increased; a security fence is being built on our border with Egypt to prevent African migrants from entering; the Trajtenberg Committee for Socioeconomic Change’s proposed cut in the defense budget was not only scrapped, the defense budget was increased in light of the unstable geopolitical situation. Under the circumstances, the government has scrambled to otherwise reduce government expenditures and to increase revenues…Read More>>