Note: The translations of articles from the Hebrew press
are prepared by the Government Press Office
as a service to foreign journalists in Israel.
They express the views of the authors.
Things Are Not as Bad as They Appear
(Commentary by Gideon Eshet, "Yediot Ahronot", Economics Supplement,
Aug 17, 1999, p.3)
Readers of statistics are supposed to feel bad. Even very bad. On one
hand, figures for the first half of the year point to a stalemate in GDP
of goods and services and thus to a decline in GDP per capita. One the
other hand, July saw an exceptional rise in the money supply. Since the
Bank of Israel is a great believer that the money supply (cash plus
current account balances) is the key sign of inflation then this figure
can be translated into a non-reduction of interest rates i.e. to
continue the recession into the future.
On the face of it, the bad feeling is based on the economic evidence.
Those listening to the radio or watching television hear and see a
deepening darkness. The situation according to the same figures is much
better. If anything can be grasped from yesterday's figures, it is that
there is a better basis for claiming that there is no recession. It is
behind us.
Let us start with imports. The half-year figure shows an increase of 16%.
Recently, we have heard concern expressed over this increase. There is
worry that the foreign exchange deficit will grow. The concern over
foreign currency is correct, but the increase in imports is the first sign
that the recession is ending. Businessmen and manufacturers are building
stocks. They think something is happening.
When businessmen sniff a turning point, they begin investing. Our
investment is composed of two main sectors: construction and
manufacturing. For the past two and a quarter years, construction has been
minimal, and as yet there are no positive signs, except for apartment
prices, that are good for the consumer. But investment in the
manufacturing sectors has risen by 13% in each of the past two quarters,
which explains a major part of the increase in imports. In fact, it the
import of durable goods cars, refrigerators, etc. that has declined
or remained frozen. The import of investment goods and raw materials is
rising, which is a very good sign indeed.
Exports are problematical. They have not grown sufficiently to cover the
rising imports. Hence the concern over the balance of payments deficit.
But exports are not frozen, and have risen in the first half of the year
more than in the past two years. This is also something.
The bottom line is production. True, figures for the first half of the
year are not good, but they are composed of two parts. Production in the
first quarter was flat, but rose by 1.7% in the second quarter. The latter
number is bad from an absolute perspective, but definitely good compared
to the earlier zero rate. Anyone wanting a future rate of production of
4%, must first start out slowly. It is to be hoped that this is what is
happening now.
And what about the unprecedented rise in the money supply? The money
supply in February 1999 declined by 4%, but rose in September 1998 by 4%.
So what happened? Nothing. The monthly figure for the money supply means
very little. It is enough to remember that most employers pay health,
clothing and other allowances in June and July. Since the beginning of the
year, the money supply has risen by 5%, which is definitely not a worrying
number from an inflationary perspective. Economically, the figure by
itself neither adds nor subtracts.
Bottom line: True, economic activity is still low. But it has definitely
awakened compared to the beginning of the year. In our difficult time,
this too is something.