Flug: What’s Good for U.S., Good for Israel

Governor of the Bank of Israel Dr. Karnit Flug told CNN on Sunday that there is reason for optimism about the Israeli economy despite issues and uncertainties domestically and abroad.

Flug termed the state of the Israeli economy as “good” in comparison with the rest of the world. “Growth in Israel is moderate, but the economy is growing,” Flug stated. “There is improvement in employment, wages are rising, and the general macroeconomic situation is good. We have to focus on the longer term.”

What’s good for America is good for Israel, she said. “If Trump’s policy provides the U.S. with economic growth, it will also be good for Israel. Our situation will be dependent on our trading partnership, and it therefore depends on how Trump’s policy affects growth there.

”In Europe, the situation is more challenging, and Europe is an important market for Israel’s trade. Essentially, we’re not looking at what other central banks are doing about the interest rate; we are interested in how their decisions affect us. We’re now close to full employment. Wages are rising, and all the indications are that the economy is close to full employment.”

Flug added, “The central bank cannot do much directly about inequality; it acts as an advisor to the government on economic matters.” She said she was working “very closely with Minister of Finance Moshe Kahlon to promote reforms that will encourage competition, but which will also maintain stability in the financial system.

”The challenge is to persuade [the politicians] to address the long-term issues, and because the macroeconomic situation is good, we have a reason to talk about the coming generations. We can talk about differential taxation for poor working people. The government supports the entry of people into the labor force, and that is excellent, but these people lack the right capabilities, and this is something that we have to address now.”

Concerning the banking system, Flug said, “The banks in Israel are stable and well-supervised. They are conservative, and were a stabilizing factor during the economic crisis. We want to encourage competition only in places where it is inadequate. We certainly need to keep in mind the significance of a crisis in the financial market. We are therefore in favor of a very balanced reform.”