ECONOMIC SURVEY - 02-Jul-96

(Communicated by GPO Economics Desk) July 2, 1996

GOVERNMENT SECTOR:

* GOVERNMENT BEGINS DISCUSSIONS ON BUDGET CUTS FOR 1996-97.
The government has begun its discussion on steps to cut spending in 1996 and make budget cuts in 1997 in order to deal with excessive government spending in the face of growing balance of payments and balance of trade deficits. In 1995, the balance of payments deficit reached $4.1 billion, while in 1996 the government's budget deficit at the end of June was NIS 5.5 billion, more than half of the total planned budget deficit of NIS 8.1 billion. The government is also aiming to push structural reforms through privatization and a leaner public sector, cutting back monopolies, introducing greater competition, increasing private savings, and continued foreign currency and import liberalization among other steps. Though Israel's economic situation remains positive, Finance Minister Dan Meridor said, during the past two years even with GDP growth averaging 5.5% the country has deviated from the growth patterns that typified the early 1990s, in which exports rather than private consumption were the engines driving economic growth. It will be far easier to deal with these problems and correct the growth pattern now, said Meridor, rather than wait until the problems grew worse.
Finance Ministry - Eli Yosef, 972-2-317201

* GOVERNMENT DEFICIT IN JUNE REACHES NIS 2.35 BILLION.
The government's spending deficit in June reached NIS 2.35 billion, the Finance Ministry reported. The government's deficit for the first half of the year NIS 5.5 billion, is more than half of the projected budget deficit of NIS 8.1 billion. Finance Ministry - Eli Yosef, 972-2-317201

MACRO-ECONOMIC SECTOR

* CURRENT ACCOUNTS DEFICIT INCREASES DURING FIRST QUARTER OF 1996.
Israel's current accounts deficit (surplus of imported goods and services versus exports of goods and services, and offset by revenues from private sector unilateral transfers and grants from the US) rose to $1.5 billion, compared to $1.2 billion for the same period in 1995, the Central Bureau of Statistics reported. The rise was due to an increase of debts abroad, an increase in investments by foreigners in Israel, and a fall in total assets held abroad by Israel. The Bureau also reported that as of the end of March 1996, Israel's net foreign debt was $19.4 billion ($44.9 billion in debts offset by $25.5 billion in foreign assets). For the first quarter, imports outpaced exports $10.2 billion to $7.5 billion, respectively.
Central Bureau of Statistics - David Neumann, 972-2-6553400

* FOOD SECTOR SALES TO INCREASE BY 8.5% TO $9 BILLION IN 1996.
Food sector sales are expected to increase by 8.5% in 1996 to reach approximately $9 billion, the Manufacturers Association reported. Exports are expected to rise by close to 7% to $655 million, while imports are expected to rise more dramatically by 12.5% to $850 million during the year. Investments by foreign firms in the food sector, mostly in joint ventures, was $150 million in 1995. The food sector's balance of trade deficit in 1996 is expected to reach $195 million, compared to $145 million in 1995, $120 million in 1994, and $1 million in 1993. Before 1993, Israel ran a positive balance of trade in the food sector.
Manufacturers Association - Kurt Gabor, 972-3-5198839

* FOREIGN CURRENCY RESERVES FALL BY $362 MILLION IN JUNE.
Israel's foreign currency reserves fell by $362 million to $8.89 billion at the end of June, the Bank of Israel announced. The drop in reserves was due to government transfers abroad, the bank said.
Bank of Israel - Ohad Bar-Efrat, 972-2-6552712

PEACE ECONOMICS:

* FLOWER EXPORTS TO EUROPE FROM ISRAEL AND PALESTINIAN AUTHORITY TO BE SEPARATED FOR TARIFF PURPOSES.
Flower exports to Europe by growers in Israel and the Palestinian Authority will from now be separated in order to take better advantage of tariff benefits from the European Union, the Agriculture Ministry announced. The move is being taken because flower exports to Europe in 1996 will be approximately 30,000 tons, in excess of the 24,500 ton quota for which the Israeli growers do not have to pay a 15% tariff. The figure includes flowers grown in the PA which are exported via Israel. Flower exports from the PA to the EU in 1996 will be approximately 3,500 tons, whereas the quota for PA flowers is 1,500 tons.
Agriculture Ministry Ya'acov Siton, 972-3-6957985

* BUS LINES TO JORDAN BEGIN FULL OPERATION 1 JULY 1996.
Public transportation lines became fully operational between Jordan and Israel on 1.7.96, the Transportation Ministry announced. The four bus lines are: Tel Aviv-Amman, Haifa-Nazereth-Amman, Haifa-Nazereth-Irbid, and Eilat-Aqaba. The price for the Eilat-Aqaba line is NIS 5, while the price for the Tel Aviv-Amman line in NIS 23.
Transportation Ministry - 02-0319690

PRIVATE SECTOR:

* GERMANY'S HENKEL ACQUIRES 50% OF SOD FOR $7.5 MILLION.
On 30.6.96, Koor and Germany's giant chemical products producer Henkel signed a strategic cooperation agreement in which 50% of Sod, a Koor subsidiary, was acquired by the German concern for $7.5 million. As part of the agreement, a new joint venture called Henkel-Sod, is being established to produce toiletries and detergents.
Koor Industries - Amiram Fleisher, 972-3-5251115