Analyst: Little Govt. Can Do to Spur Economic Growth

Following a negative report from the Central Bureau of Statistics (CBS) on the Israeli economy last week, Finance Minister Moshe Kahlon (Kulanu) summoned his top officials to an emergency meeting to discuss ways to promote growth.

But unfortunately for him – and Israel – there is little Kahlon can do to promote growth, said Kristin S. Lindow, a senior analyst at the Moody's economic ratings firm. Less than two weeks before the CBS report on August 16th that the Israeli economy had contracted significantly in the second quarter of 2015, “lengthy and contentious negotiations among cabinet ministers yielded budget agreements for 2015 and 2016 barely in time to avoid a government collapse.”

The government just squeezed through that budget, said Lindow, and only at the cost of concessions on social spending and an increased deficit. That is about as far as the government can go with only 61 members, said Lindow. “Fiscal authorities have little or no additional room to maneuver because spending ceilings have been set and the central bank policy rate is already virtually zero. As such, Mr. Kahlon’s quick mobilization of his team is unlikely to lead to concrete measures to support growth, at least over the next several months while the budget is being debated,” she said.

The poor economic results for the second quarter were “broad-based, driven largely by a decline in consumer spending growth and contractions in both exports and investment,” Lindow said in a note on the CBS findings. “Private consumption was a leading driver of GDP growth in 2014, peaking at a 7.5% annual rate of growth in fourth-quarter 2014 before slowing to 5.5% in first-quarter 2015 and to 0.9% in second-quarter 2015.” Much of that slowdown was due to Israelis' holding off on purchases of cars, major appliances, and other durable goods.

Still, there was a glimmer of hope, Lindow wrote. “The weak second-quarter report came as a surprise in large part because it showed a steeper slowdown than suggested by coincident economic indicators from the labor market, where the unemployment rate continues to fall to all-time lows even as the participation rate rises, as well as from tax revenue, which has been very buoyant. These contradictions may mean that the second-quarter growth rate will be revised upward when the next estimates are published in a month,” she added.

Source: http://www.israelnationalnews.com/News/News.aspx/199868

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