Today’s papers in Israel were full of the stats from the last economic quarter. Private consumption up 4%. Growth up 1%. Exports up 5%. Investments up 5%.

Apart from rising unemployment and inflationary scares, all seems rosy, as Israel comes through the global downturn. And…and now let’s return to reality.

Yes, I have always maintained that Israel’s economy was well placed this time last year, especially compared to the UK and to the USA. For example, there was no mortgage crisis in the Holy Land.

“We are not out of the economic recession yet,” declared Finance Minister Steinitz today.

Look at the reports, and maybe the problem is not if “you are out of it” or if you are “emerging from it” or if “round the corner is a bright light”. What has happened is that in order to ensure that the country would not go through a major depression, unusual economic measures have been taken. And these have created discrepancies that have not existed for decades.

1) How can the government provide more resources for growth, when the fiscal deficit has soared?

2) The shekel has strengthened to the dismay of exporters, but the Bank of Israel (BoI) is about to raise interest rates. And, the BoI has ceased to buy dollars in the financial markets. Thus, the 2 weapons used to depress the shekel have been taken out of play. thus exporters will receive less of a return.

3) The labour market has yet to pick up, as layoffs still occur or production is fuelled by overtime.

So, where is the country going? Yes, Israel is doing well, on its own and compared to many others. That is very encouraging for the future and good news for overseas investors.

However, when considering what may happen next, it is The Economist magazine that gives us some guidelines. As this week’s leader points out, the global economy has ceased to shrink, but that is the end of the good news. Many powerhouses are in for a long period of weak growth.

For Israel, with an economy dependent on exports, that is not good news.

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