Israel's gross domestic product (GDP) dropped 0.5 percent,
according to preliminary figures released by the Central
Bureau of Statistics. It is probably more predictive and
meaningful for Israel to compile such statistics for the
Jewish year: 5761 was not an overall decline and 5762 is just
starting, though it does not look good. Exact statistics for
the Jewish year are not available.
The figures indicate the economy continued to shrink in the
fourth quarter of 2001, after officially entering a recession
in the third.
The shekel also ended the year at an all-time low versus the
dollar. The representative rate was fixed on January 1 at NIS
4.416 as it declined another 0.7 percent early this week.
Over the course of 2001, the shekel lost 8.4 percent against
the dollar, beginning the year at NIS 4.04 per dollar.
Israel is continuing without a state budget. Negotiations
between Treasury and Knesset representatives over the future
of the economic arrangements bill were halted on Monday, when
the parties failed to reach agreement.
At issue is a long-standing disagreement between Finance
Minister Silvan Shalom and Knesset Speaker Avraham Burg and
House Committee chairman Yossi Katz over which committees
should debate the bill.
Burg and Katz insist on sending various clauses to different
committees to allow closer scrutiny of their contents, while
Shalom wants to send the bill in its entirety to the Finance
Committee, where it will receive swift, wholesale treatment.
Hundreds of Negev residents protested outside the Knesset
against the government's proposed freezing of the Negev Law.
Disabled demonstrators also continued their protest across
from government ministries, though an agreement with the
Treasury over their demands seems to be close.
The GDP figure released by the CBS early this week was well
below the Treasury's original forecast of a 4.5 percent rise,
which was used as the basis for the 2001 budget. The decline
in growth was the first since 1953.
"The impact of September 11 pushed virtually all categories
into decline," said Aharon Blech, who oversees national
accounts at CBS.
Some economists said, however, that the statistics may be
misleading and the economic situation is not so bad.
"The year 2000 was exceptionally good and therefore the
decline in 2001 does not tell the true story," said Prof. Dan
Galai of the Hebrew University. "The way to look at the
figures is to combine the two years together and see that the
local economy actually grew by a healthy rate of 3 percent a
year."
Galai, who is also joint CEO of Sigma PCM Investments, said
the economy was mainly affected by the global economic
slowdown and is therefore expected to start recovering in the
second half of the year, if and when the US economy recovers.
Galai added that the Israeli-Palestinian conflict had no
serious impact on the economy. He said that we have been
living with conflict for the last 50 years and the economy
continued to gradually grow.
The CBS said GDP per capita fell 2.9 percent to NIS 72,000,
as the population grew 2.4 percent. The figure is
substantially lower than the average 0.5 percent increase in
GDP per capita in developed countries, according to official
figures of the International Monetary Fund.
Israel's GDP per person is about $17,100 a year, putting it
between the middle and the upper third in Europe, right after
Italy, but before EU members such as Spain and Portugal.
The CBS said that while it does not yet have data for the
fourth quarter, it will most likely also show a decline. GDP
fell at an annualized 5.4 percent in the third quarter and a
decline of 3.7 percent in the second. GDP rose by 1.8 percent
in the first quarter.
The shekel has generally shown considerable strength,
depreciating by less than 10 percent over the past three
years, despite some very difficult economic times.
A 13.1 percent drop in exports, largely in the high-tech
sector, was the main cause of the contraction last year.
Exports grew 24 percent in 2000. A nearly 50 percent drop in
tourism, largely due to the intifadah, along with a 10.5
percent fall in construction also weighed on the economy, the
CBS said.
The lone bright spot was a 3 percent rise in public and
private spending, although most of it was in the public
sector, the CBS added.
Tel Aviv shares closed 2001 with declines as a bout of profit-
taking reversed seven consecutive gains that were fueled by
the interest rate cut, dealers said. All told the Israeli
stock exchange rose 15 percent in the last full week of 2001.
On the political front, both Israel and the Palestinians said
that American envoy General Zinni is due back in Israel at
the end of the week. Defense Minister Ben Eliezer told the
Cabinet on Sunday that for the second week in a row, there
has been a decrease in the level of violence and the scope of
terror attacks. There is evidence, he said, that the
Palestinian Authority is doing something to fight terror.
The Defense Minister made it clear that one must not be
deluded into thinking that Israel has achieved peace and
quiet since the Palestinian Authority is only operating
superficially and because the heart of terrorism has not been
hit, and planning for deadly attacks continues. The Defense
Minister commented that most of the dangerous terrorists are
still at large and added that most of the infrastructure for
terrorism has not been hit.
"We called for a reduction in incitement, and there has been
a reduction in incitement. Then we called for an halt to
mortar fire, and there was a halt to mortar fire," Foreign
Minister Peres said. "I'm not saying they've done everything
already. I'm saying they've done something in a clear
direction."
