BOI Report on Economy Less Upbeat Than Netanyahu Sees It


The Bank of Israel’s annual report on the economy was considerably less exuberant than Prime Minister Binyamin Netanyahu’s use of it at the weekly cabinet meeting earlier on Sunday.

Whereas Netanyahu hailed it as news of “full employment” and rising wages, the report itself spoke of stagnating productivity, a stalled high-tech sector, and weakness in exports and investment.

Netanyahu did acknowledge that “we still have much work to do here,” but one had to turn to the report to understand just how much work was left to do.

Regarding the decline in high tech, which has been a major growth engine for the Israeli economy, the Bank of Israel said: “It is possible that the sector’s potential for quick growth has been exhausted, now that major international companies have already opened research and development centers in Israel.” The bank’s economists also cited the high salaries paid to workers in the field, which are among the highest in the world.

Productivity grew by only 0.5 percent, compared with 1.5 percent in the OECD countries, a sign Israel is lagging behind in per capita GDP – the main indicator of a country’s wealth.

This constitutes an alarming reversal of the trend in 2006-2013, when Israel narrowed the gap between its productivity and the OECD average from 25 percent to 15 percent; this gap has widened since 2013, and now stands at 17 percent.

The BOI did see, in line with the prime minister’s remarks, a negligible interest rate, a rise in disposable income caused by higher wages, and the drop in energy and commodity prices that contributed to the spurt in private consumption.

Private consumption was up 4.9 percent in 2015, the highest rate since 2007. Israel’s entire 2.6 percent growth in 2015 is attributable to the growth in private consumption, which offset the negative effect of the decline in exports and investment.

Meanwhile, there was good news from the international credit rating agency Moody’s. The most conservative of the three major rating agencies, Moody’s on Sunday confirmed Israel’s A1 rating with a stable outlook.

In the comment attached to its rating, Moody’s economists said the rating was supported by economic flexibility and the great effectiveness of the government, which is constantly working to improve Israel’s debt and financing figures. The agency also stated that were it not for Israel’s geopolitical risks, its credit rating would be higher.

Moody’s forecasts 2.9 percent economic growth and 0.6 percent inflation in 2016, compared with 2.5 percent growth and minus 1 percent inflation in 2015.