The news that Prime Minister Benjamin Netanyahu intends to raise taxes and cut the budget took some by surprise Tuesday evening — but to analysts closely watching the economy, the move may have been expected.
Numbers watchers say figures show Israel’s economy slowing down, raising concerns that the economy could be headed for a recession.
The Israeli financial news outlet Globes reported that the month of June ushered in a slew of shabby economic data: As home prices and budget deficits rose, the Consumer Price Index (CPI) unexpectedly dropped by 0.3 percent and retail chains’ sales slowed, as did exports.
Israel has generally prided itself on its resilient economy, which managed to weather the 2008 world financial crisis. But the start-up nation may be starting to feel the effects of a worldwide slowdown.
The central bank’s prognosis was that Israel’s economic growth would decelerate to 3.1% in 2012 — down from 4.8% in 2011. The economy grew 2.7% in the first quarter of 2012 — which is its slowest pace since 2009.
Citigroup analyst Michael Klahr further added that Israeli stocks had “declined significantly” in the past year, and that they are not “going to rally in the foreseeable future,” Bloomberg News reported Tuesday.
Economists also predicted that the deficit may reach NIS 58 billion in 2013, as opposed to its target of NIS 30 billion, Globes reported. Netanyahu had decided to increase 2013’s budget deficit target from 1.5% of GDP to 3%. Bank of Israel Governor Stanley Fischer, has been a proponent of keeping the deficit target low.
The 2012 deficit target of 2% of the overall GDP, or NIS 20 billion, is expected to be closer to NIS 40 billion, the report added.
One silver lining, however, may be the US dollar approaching NIS 4. The devaluation is a positive piece of news for Israeli exporters because it means they can charge overseas customers fewer dollars for the same price in shekels.
Yet, while Netanyahu has been concerned with increasing the efficacy of the economy overall, his critics contended that under his watch state revenues have lagged — at the expense of the middle class.
“Gaps between rich and poor have expanded to shameful proportions during his tenure,” Labor Party leader Shelly Yachimovich said Monday. She cited education, health, and job security as areas that have faltered under Netanyahu.
Administration officials retorted Tuesday by saying that Israel had added some 300,000 jobs recently while unemployment around the world ballooned.