Central bank governor David Klein said on Monday that the
conditions necessary for renewed economic growth have now
been created. Klein said three things had set the stage for
renewed growth: the government's economic program, the
resumption of the Palestinian peace process, and the start of
a worldwide economic recovery, albeit so far a slow one.
In a presentation to foreign businessman invited to Israel by
UBS, Klein surveyed the main elements of the economic program
recently approved by the Knesset, including budget-cutting
measures, investment in infrastructure, efforts to reduce the
number of foreign workers, and structural changes in the
economy. He emphasized the structural changes, saying that
their implementation would improve competitiveness of the
entire economy.
Klein said implementation of the economic plan in full would
reduce the budget deficit and the debt-to-GDP ratio, which in
turn would enable interest rates to decline and would spur
growth.
Last week the Bank of Israel reduced interest rates by 0.4
percent, the largest monthly drop in a year and a half. The
latest reduction brought the fall over the last three months
to 0.9 percent. Rates in Israel are still very high compared
to the rest of the world.
The dollar has fallen considerably against the shekel, and it
is currently at just under NIS 4.40 per dollar. This fall has
been in parallel to a weakening of the dollar against other
currencies, especially the euro and the yen. The fall of the
shekel has moderated inflation as it reduces the prices of
imported goods and materials. Inflation in Israel is now
virtually nonexistent.
The Tel Aviv stock exchange has risen sharply in the past few
months, by over 30 percent. The TA100 index is now at 418.
Israeli companies listed in New York have also gone up
sharply in the past few months, along with the general
markets in America.
