Global recession hits growth in Israel

By Simon Griver, November 27, 2008

The Israeli government has announced a range of rescue measures as new data show the country's economy is beginning to feel the effects of the global recession.

Bank of Israel Governor Stanley Fischer also sprang a surprise by cutting interest rates an additional 0.5 per cent to 2.5 per cent - the lowest level in Israel's history. Mr Fischer has now lowered interest rates by 1.75 per cent since the start of October.

On Tuesday, Minister of Finance Ronnie Bar-On unveiled plans to inject NIS 11 billion (£1.82m) in capital and guarantees into Tel Aviv's financial market, mainly designed to assist Israel's largest corporations, which are struggling to raise credit due to a sharp drop in the corporate bond market.

Earlier this week, Mr Bar-On announced limited measures to assist Israelis about to reach pensionable age, who have seen their pension funds eroded by about 16 per cent in recent months due to the fall in the country's bond market. The Ministry of Finance also presented a plan to boost employment by extra allocations to infrastructure projects.

All these plans are subject to Knesset approval and Mr Bar-On said: "It is vitally urgent for these measures to be approved, otherwise the economy will be frozen."

With elections in February, Attorney-General Meni Mazuz ruled that the plan was not "election economics".

Proof that the credit crunch had finally reached Israel came when the Central Bureau of Statistics published figures to show that third quarter growth in 2008 slowed to 2.3 per cent, compared to 4.1 per cent and 5.2 per cent in the second and first quarters respectively.

This is still impressive compared to the contracting economies in North America, Europe and Japan, but reflects the period before the full force of the global financial collapse in late September. The Bank of Israel also lowered its growth forecast for 2009 from 2.7 per cent to 1.5 per cent.

Unemployment remains at 5.9 per cent, the lowest level for a decade, but with a fall in export orders, Israel Association of Electronics Industries chairman Yehuda Zisapel said earlier this week: "We expect there to be 7,000 layoffs within the Israeli high-tech sector and a further 28,000 in areas that provide services to that industry."

Meanwhile, Israeli chief rabbis Shlomo Amar and Yona Metzger declared yesterday (Thursday) to be a special day of prayer in response to the global crisis.

Calling for people to fast, attend synagogue one hour early, and make special donations to charity, they said in a statement: "We ask our brethren to gather at synagogues and places of Torah study on Thursday to say a prayer and ask for mercy following the financial crisis that has swept the world.

"Many a good people have already been affected, and the Torah and education institutes are barely coping, with some facing the risk of closing down."

Last updated: 1:54pm, November 27 2008