Israel’s macro economy; smile or frown?
Last week, I described why multinationals are still flooding into Israel. Since then, we have learnt that Intel will sink a further US$10 billion investment into the Holy Land. As if that is not enough, it appears that S&P will affirm Israel’s credit rating at AA level. Amazing stuff!
Unemployment, although up slightly, is only 4.3%. The average wage is still on an upwards path in real terms. Inflation remains low, at below target levels. Economic growth hovers around 3%, even if 2019 may see a slight slow down.
All in all, very encouraging, except that……..
First of all, this is election year. You wonder who is in control, as the PM hits the campaign trail, and while he is spending overtime defending himself from anticipated charges of corruption.
And I also suspect that the economy has suffered from a subtle ’bout of election economics. What has the Finance Minister given away so that he can be seen as the good guy? Back in 2017, the budget deficit was 1.9% of GDP. Depending on whose version you believe, that figure has shot up to at least 2.9%, if not 3.6%.
To simplify that statement. The Israel government has to fund an extra deficit of 50 billion shekels or around US$13 billion. So, no accurate figures and whatever those number are, they are worse.
On the foreign trade front, Sver Ploscker, a leading journalist points out in today’s newspaper that when the current government was formed in 2015, Israel reported a positive trade balance of US$2 billion. While the final stats for 2018 are not yet in, exports have dropped by US$ 2 billion to US$62 billion. Imports are 30% higher at around US$80 billion. That trend is dangerous and certainly not sustainable.
I still maintain that some of the fundamentals of the Israeli economy are superbly strong. Great, but that should not blind us to some inner core problems that require immediate attention. What I do not see is a set of government ministers with the will, care and ability to do something.