1998 has been the worst economic year in the past decade. The growth rate will reach 1.6%, following moderate growth of 2.2% last year.
This is a 3% correction in the Ministry of Finance’s official growth forecast, determined on the basis of the September 1997 budget. This is also a correction in the updated forecast of 2% set in August this year. The business product, according to new estimates, is expected to grow this year by only 0.9%. These growth rates are significantly lower than the economy’s growth potential.
The revised forecast reflects updated estimates on the extent of the economic crisis in Russia and the Far East, and an increase in uncertainty in the Israeli economy stemming from this. The Ministry of Finance emphasizes that without the sharp shekel devaluation of recent weeks, an additional slowdown in the growth rate would have been posted. GNP losses in 1998 were estimated at 1.5%, due to the world economic crisis and loss from tourism revenues. A sharp reduction of 3.5%-4% in total export is also expected, following the cutbacks in world trade.
According to updated estimates, the per capita growth is expected to drop 0.8% this year, compared to a 0.5% growth in the original plan. Standard of living (per capita private consumption) will rise by only 1.2%. Overall private consumption is expected to grow 4%.
Investments in the economy will fall by 4.8% this year. In residential building, a sharp drop of 8.5% is expected in investments, following the freeze of 1997.
Unemployment rate will reach an average 9.1% this year, against the originally planned 8.1%. This is the highest unemployment rate in the past five years. The number of employees in the private sector will not increase this year.
Overall export is expected to grow this year by only 3.1%, because of the damage to export to Russia and the Far East. According to the original plan, export should have grown 7%-8%. The increase rate in import will reach only 2%.
Public consumption is expected to grow this year by 2.2%, above original plans, in an attempt to boost economic activity. Civilian consumption is expected to grow 3.1%, compared with 2.5% in the original plan.
Published by Israel's Business Arena October 26, 1998