Is anybody home?
Op-ed: Recent data indicate that Israel is heading towards a clear and worrying direction: an economic crisis. And what is the government preoccupied with? Easing the import of cornflakes.
When the Economics Department of Bank Hapoalim reduced its annual growth forecast for the Israeli economy earlier this week, setting it at just over two percent—meaning zero growth per capita—Treasury officials said that the bank was "taking revenge for the Executive Pay Law" (which caps bank executives' salaries at less than $1 million a year—ed.). This comment is more appropriate for psychiatric analyses, as it doesn't contain a trace of serious governmental response to serious trends that should disturb the sleep of the people in charge of Israel's economic policies.
Recent data indicate that Israel is indeed moving towards a classic financial crisis, which is most worryingly similar to the situation in the United States at the beginning of the big financial crisis of 2007-08. Housing prices in America were at a record high at the time, while loans to households were generously provided. The administration, meanwhile, was busy encouraging unbridled competition in the financial sector by providing incentives to homebuyers while neglecting the escalating distress in the manufacturing sector. That is exactly what's happening in Israel now.
Especially alarming is the collapse in exports. Exports, the very lifeblood of the Israeli market, are shrinking every quarter at double-digit rates, and are now lower by tens of percent than they were a year and a half ago.
Finance Minister Moshe Kahlon and Prime Minister Benjamin Netanyahu (Photo: Alex Kolomoisky)
The official explanation to this unexpected and unprecedented decline - "it's all because of the decline in Teva and Intel's exports" - is not true. Teva and Intel's problems in global markets could explain at most a third of the decline in exports. The rest can be explained by the government's economic policy. Or, more precisely, the lack of one.
Explanations that attribute the economic decline to the shekel's exports and global recession fall short as well when faced with the data recently published. In the past year, there hasn't been a significant revaluation of the shekel against the dollar (there has been a slight devaluation) and there hasn't been a dramatic decline in international trade. International trade continues expanding, albeit a bit slower. The decline in exports was not, then, caused by external economic forces that are out of the government's control. This is our internal diseases, which is waiting in vain for our cure.
In the first months of 2015, Israel had a negligible deficit in foreign trade. Exports almost equaled imports, or were lower by negligible amounts. Now, the deficit skyrocketed and is ten times higher, while the trend is only intensifying. This deficit increase causes a particularly sharp slowdown in growth, unprecedented in years of a quiet security situation. It also leads to a negative change in employment. Tens of thousands of industry employees move to government and public service, which contributes little or nothing to economic growth.
And what is the country's leadership preoccupied with while this threat of an industrial crisis looms ahead? Wages in the financial sector, easing the import of cornflakes, monitoring the price of vegetables and the futile calculations of the "numerator" (a mechanism meant to calculate the government's deficit for the next three years—ed.), which is an Israeli invention that would prevent the correct use of the budget to accelerate growth. What an embarrassment.
The wolf is already here, and you're busy looking elsewhere.
