The financial crisis in South East Asia will affect Israeli exports and reduce GNP in ’98. The rate of GNP growth in ’98 will slow some 0.5% to 0.8% below the original forecast. This is according to the Bank of Israel’s research department in their survey of general developments.
International sources estimate that the crisis will cause a 5% to 10% reduction in GNP of the South East Asian countries in ’98. This year, the Asian crisis is likely to cause a reduction in growth in the US and the EU of some 0.5% to 1%. The crisis will adversely affect the movement of funds to other developing countries such as Brazil, and they will be compelled to adopt measures of restraint thereby slowing their economic growth.
The Bank of Israel says that the crisis in the East will have a favorable influence on world-wide inflation. The devaluations in the far East reduced the anticipated rate of inflation in the world generally. According to the IMF forecast for ’98, a slowdown in the rate of growth of the developing countries and of world trade was expected. On the other hand, inflation in the developed countries will decline, reaching an average of 8%.
The forecast is for world production to rise by 3.5%, compared to 4.1% in ’97. Growth will be at 2.5% in the developed countries and 4.9% in the developing countries. World trade will increase by only 6.1% this year, compared to 8.4% last year. Inflation in developed countries will reach 8.1% this year compared to 9% last year. The rate of unemployment in the industrialized countries will fall this year to 7%, compared to 7.3% last year.
The Bank of Israel believes that the fall in worldwide inflation will help Israel achieve its target inflation rate in ’98.
Published by Israel's Business Arena January 29, 1998