Stanley Fischer
Photo: Flash 90
Fischer predicts market growth, rise in unemployment
Bank of Israel governor reviews Israeli market's expected performance for 2009 at Caesarea Economic Forum; says state budget targets feasible, slow and steady growth will curb inflation even if public won't feel it at first
Bank of Israel Governor Stanley Fischer addressed the annual Caesarea Economic Forum Thursday and said that the Israeli market is doing better than expected considering the recession.
"The reports we see for companies' second quarter will show that things are going better than they did in 2009's first quarter. Some companies predict growth for this year's third quarter, so the market may experience overall growth before the end of the year," he said.
Predictions
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Despite the encouraging prospects, Fischer said that unemployment rates are still expected to rise: "We will say we are experiencing a growth, but the public won't feel it. This is a common phenomenon in a recession.
"We passed the low point of the financial crisis. In retrospect, the low point took place in late 2008, but the crisis is ongoing. This year's Q2 was the best one (world) stock markets have seen in the past 20 years. The panic I saw was the worst, and probably the greatest since the 1930s; and it was far more dangerous, since today's financial systems are much more complex," he said.
Positive turn aside, the governor was careful in his assessments: "We can't be sure whether or not we've passed the realistic low point. We assume it will happen in the second half of 2009, or during 2010's first quarter. That's not so good, but if you go back six months, you realize that the situation is better than we thought it would be."
Deficit goals feasible
Turning his attention to the state budget, Fischer said that it "allows the market's automatic stabilizers to do their job and nothing more."
Automatic stabilizers are meant to offset fluctuations in economic activity, and according to the governor, the decision was made "not because we decided it was the best possible policy, but because we have to take into account that we need to finance the deficit.
The government's deficit targets for the next two years, he added, "Are responsible and feasible. You also have to remember that for the first half of 2009 we didn’t have a (state) budget, so the second half should see a 6% increase in public expenditures.
"If the Treasury spends the money, which it does not do easily, and make full use of the budget, we will have a major and positive fiscal incentive. Nevertheless, the Bank of Israel's analysis suggests we are going to experience difficulties in the 2011 budget, and we will have to address them in the next few years."
As for the possibility of spiking inflation rates, Fischer said that "as long as we see slow growth, inflation rates are not expected to rise. With the tax increase, we will see a price hike in the next few months, but that's all it is – not inflation.
Amnon Atad and Shaul Amsterdamski contributed to this report
