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How is Israel weathering the global economic storm?

FischerPeople often ask me, how is Israel weathering the global economic storm? Well, according to Bank of Israel head Stanley Fischer in an interview in today’s Haaretz, the recession in Israel is officially over.

That doesn’t mean that things will improve overnight. Unemployment generally lags behind increases in spending, as it takes time for companies to gear back up after months of sustained layoffs.

“Can we sit back and relax now? To a certain extent,” Fischer said in a separate interview with The Jerusalem Post. “But we should not exaggerate. Over the next two years we are likely to feel the repercussions of the crisis.”

How did Israel pull out so quickly? In part, because we didn’t have a sub-prime mortgage crisis. I used to bemoan the fact that we couldn’t put 5-10% down and own a house. In Israel, 60% down was the rule. But that seems downright smart these days.

We also didn’t have any banks fail during the crisis. BOI chief Fischer bought millions of U.S. dollars – what’s known as an expansionary monetary policy – which shored up the shekel to dollar exchange rate in favor of Israeli exporters. Fischer expects that today’s NIS 3.7 to the dollar will go up soon.

Ironically, another reason Israel fared relatively well: the national elections earlier this year. “The entire nation was being run until mid-year by the budget for 2008,” Fischer told Haaretz. That meant no new spending could be authorized. “Even if it wanted to, the government couldn’t squander money.”

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Posted in In the News, Israel, Saving Money.

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Continuing the Discussion

  1. No mortgage tax breaks = good news for Israel | minusPLUS linked to this post on December 8, 2009

    […] another take on why Israel has come out relatively better from the global financial crisis (see my previous post here): we don’t have tax breaks for household […]

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