Bank of Israel The Governor of the Bank of Israel Stanley Fischer spoke (1 February 2012) at the Herzliya Conference. The following is [excerpts of] a summary of his remarks.

In opening, I would like to speak about the state of the global economy... Global growth is expected to be 3.3%, [with] a global growth rate of 3.5% as the boundary between recession and normal growth.

European countries have realized that there is no certainty regarding expected events in the case of the departure, voluntary or forced, of a country or countries from the euro bloc, and so they have bolstered their efforts to find a solution to the eurozone problem. As a result…the probability of a crisis in the eurozone has decreased.

However, despite the uncertainty regarding how a crisis would come about, if it does come about, it is clear to us that in Israel it will be characterized by a sharp negative impact on exports. In that regard, I was pleased to hear the Director General of the Ministry of Industry, Labor and Trade, who reported progress in the signing of trade agreements with emerging markets. With that, the decline in exports can already be seen.

The Bank of Israel has begun to respond through monetary policy and reduced the interest rate three times in recent months. We are struggling to assess what will happen in Europe, and so we cannot speak of a clear path for the interest rate…

In the housing market, we see some calm, and I was pleased to hear forecasts here of prices continuing to decline, though moderately.

Looking at short terms variables, then, we have a strong, flexible, and steadfast economy. Since I became governor of the Bank of Israel, the economy has experienced very significant stress tests and was nearly unscathed.

The economic policy framework is strong, and people in Israel have a lot of experience in dealing with tough problems, experience which helps in dealing with problems when they arise. If there will be a financial crisis in Europe, it will have a negative impact on us, but I believe that we will be able to deal with it.

From the perspective of long term variables, we are dealing with tough problems in the area of the increase in the scope of poverty. Figures show, not surprisingly, that poverty is prevalent among large families, with the probability of poverty being greater if two parents are not working, and that poverty declines with an increase in education. Figures also indicate very large - and growing - prevalence of poverty among the Arab and ultra-Orthodox populations.

Poverty among those populations is considerable because of the low rate of participation in the workforce by those populations, and I believe that that this situation is not sustainable…

We see positive trends; we see, for example, a change among the ultra-Orthodox, which can be seen in the fact that today there already are 6,000 ultra-Orthodox students in colleges. In the Arab sector, there is a trend of establishing independent businesses, even without government aid.

In the long term, we obviously must deal with the problem of the Israeli-Arab conflict and the need to reach a peace agreement. In my view, the Israeli economy is a sort of miracle, and we have very talented people. If we succeed in resolving the problems of relations with our neighbors too, we will be able to achieve the growth, prosperity, and standard of living which we deserve.

Source: (Israel Ministry of Foreign Affairs, February 1, 2012)

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