Furthermore states Prof. Melnik that the macro economic developments in the Israeli economy in 2004 were positive and that after a continued economic crisis there was a positive turn which was expressed mainly in the business sector.
A research team dealing with the subject of the macro economic policy for future growth and economic recovery in Israel, recently submitted their conclusions and recommendations supporting the positive change in direction undergone by the Israeli economy during the past year.
The members of the team, headed by Prof. Rafi Melnik of the Interdisciplinary Center in
Herzliyah, conducted the study for the Caesarea Conference for many months, reviewed among other things, the macro economic developments that occurred in the Israeli economy during last year, the fiscal and monetary policy in Israel, as well as the welfare policy for the low income population. The team also presented its macro economic forecast for 2005-2006.
According to the report it is expect that after a relatively fast growth of 4.3 percent in 2004, we will see a slight moderation in the growth rate in 2005 and in 2006, to 3.8 percent and to 4 percent in 2006. The business production that increased by 6.1 percent in 2004 is expected to increase by roughly 4.5 percent in 2005 as well as in 2006.
The consumer price index is expected to increase by roughly 1 percent on an annual average in 2005 and by roughly 2 percent in 2006.
The researchers presented figures that indicate that the macro economic developments in 2004 were positive, and stated that after a continued economic crisis there was a positive turn in the business turnover of the economy, which is expressed by the fact that the business production has grown at a rate of more than 4 percent.
The study further states that the positive developments took place in a climate of very low inflation, stability in the financial markets and the exchange rate, excess in the current account of the balance of payments and a decrease in the unemployment rate.
The researchers stated in their study that at this stage it is not clear whether the positive macro economic developments have left their mark on Israel’s social problems and whether there is also an improvement in the areas of poverty and inequality, which had worsened in the crisis years (2001-2003).
The study presents figures that show that after three years in which the production per person decreased by 6.3 percent cumulatively, the product per person once again increased by 2.5 percent and that the crisis and the turn in the economy stood out mainly in the business sector in which the business production per person decreased by 9.1 percent in 2001-2003 as opposed to 2004 in which it increased by 4.3 percent. Furthermore it is stated that the positive turn was also expressed in the job market, unemployment rate decreased at the end of 2004 to below 10 percent and continued to sharply decrease at the beginning of 2005, after climbing to 11 percent in 2003. The researchers expect that the unemployment rate will continue to reduce, to 9.1 percent in 2005 and to 8.7 percent in 2006.
The report describes a number of reasons for the positive change, such as worldwide trade which expanded and influenced Israeli export in a positive way (a factor that was the main cause in the turnaround). Fewer terror acts, the change of government in the Palestinian Authority after Arafat’s death, the evacuation program, the end of the war in Iraq and the guarantees from the United States have all positively influenced private consumption.
The team determined that a significant improvement has occurred in the macro-economic policy in Israel, after years of policy makers’ inability to deal with the crisis.
According to them, the change began following the restrained fiscal and monetary government policies and due to a combination of restrained fiscal policies and broader monetary policies which in