Fischer: Economy recovering faster than expected
Bank of Israel governor reports growth rate of 4.8 percent, drop in unemployment, low inflation, financial and foreign currency markets functioning well
Bank of Israel Governor Professor Stanley Fischer spoke at the Israel Business Conference in Tel Aviv, which was sponsored by Globes magazine.
Fischer reported that Israel 's economy is recovering much faster than expected, following the second Lebanon war .
Fischer said that although this year's third quarter recorded a drop of 1.4 percent in the annual GDP rate, the damage to production was less than had been predicted, and so it seems that the annual growth rate of 2006 could actually reach 4.8 percent which is higher than was expected after the war.
The governor pointed out that the Bank of Israel's forecast for 2007 still indicates a growth of 4 percent, which is the growth forecast that was predicted right after the war. Fischer said that he wouldn’t be surprised if it would continue to rise.
Unemployment numbers are also down, according to Fischer, to 8.3 percent in the third quarter, form 8.9 percent in last year's third quarter.
Fischer expressed a positive outlook on Israel's economy, pointing out that inflation is low, and that the financial markets and the foreign currency market are functioning well.
He also stated that the foreign currency market indeed reflects developments around the world, but it also reflects the great flow of foreign investments in Israel and the impressive excess in the balance of payments expected to reach 4.7 percent of the GDF this year.
Fischer also addressed the September – October index drop and said that in hindsight, this 1.5 percent index drop is what kept the inflation down, and indeed lower than was predicted.
Fischer explained that the Bank of Israel could have reacted differently to this index drop by drastically lowering interest in order to get back on track more quickly, but this method could have led to unstable overshooting, which would raise inflation in the long run.
The growth, according to Fischer, stems mainly from Israel's very successful private sector.
This year, foreign investments in Israel's economy have reached an all time high of USD 17 billion, demonstration how open Israel's economy is to the world.
Still, the governor said there are some areas where there is still room for improvement.
Areas that need improvement, according to the governor, include obtaining licenses, enforcing contracts, registering property and in general, contributing to a better business environment.
He stressed the importance of a pleasant business environment in order to preserve and encourage investors from Israel and abroad.
Furthermore, Fischer emphasized the importance of Israel joining the Organization for Economic Co-operation and Development (OECD).
He pointed out that Israel's membership in the OECD would promote Israel's status in the world's most important financial forums, and would strengthen Israel's economic ties with other countries.
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