ECONOMIC SURVEY
3 November 1998
(Communicated by GPO Economics Desk)
MACRO-ECONOMIC SECTOR:
* In the period of April-September 1998, economic developments reflected
the decline in consumer demand and slowing rate of production. Real wages
in the second quarter rose 3.8% over the corresponding period last year,
due to an increase in productivity, especially in the business sector,
among other things as a result of employee dismissals. Unemployment in
October 1998 reached 213,000, or 9.4%, up from 7.7% from the same period
last year. The total number of people employed in the civilian work force
at the end of the second quarter was 2,257,000.
The Consumer Price Index (CPI) rose moderately between May and August,
followed by a relatively sharp rise in September, mainly due to the
accumulated effect of the shekel's devaluation against the U.S. dollar.
The anticipated inflation index for the coming 12 months -- as calculated
from developments in the capital market -- rose sharply in the third
quarter to over 10%, compared to 5% in the second quarter; by the end of
October, the rate had settled to 7%. These fluctuations reflect, in part,
fluctuations in global financial markets. Through September, the Bank of
Israel lowered the interest rate by an accumulative rate of 3.9%; in
October, the situation in capital markets and foreign exchange rates
forced an increase of 2%, in order to prevent prevent higher inflation,
wage erosion and to stabilize the economy.
October saw a 10.5% depreciation of the shekel against the dollar and an
11.7% depreciation against the basket of currencies. The exchange rate at
the end of October was $1 = NIS 4.25. The sharp fluctuations in exchange
rates reflected shocks in global financial markets and the drop in the Tel
Aviv Stock Exchange; local investors tried to lower their exposure to
foreign exchange risks and foreign investors liquidated local financial
assets, following the sharp drops in stock exchanges across Europe and the
United States.
Israel's foreign currency reserves in October 1998 were $21.84 billion, up
over $2 billion from a year earlier.
* INDUSTRIAL PRODUCTION
The period April-September 1998 saw the 1997 industrial production trends
continuing: after a brief rise, investments and new construction --
especially new housing -- declined, and trade and tourism remained low.
Transportation and communications rose slowly. The Industrial Production
Index rose by 1.9% in annual terms during this period.
In the first half of 1998, production of electronic equipment,
transportation equipment, chemicals rubber and plastics rose by an average
of 9% compared to the same period in 1997, while traditional industries
such as textiles and leather, food and beverages, tobacco and wood
products, furniture, paper and printing grew by under 1%. Activity in
mining and non-metallic minerals dropped by 8% in the first half of
1998.
Industrial exports were 9% lower in September than in the first quarter of
1998, dropping an average of 2.8% a month. The decline in industrial
production and exports reflects the crisis in world markets and the large
decline in new housing starts, which was 56% less than in the comparable
period in 1997.
* TAX COLLECTION AND BUDGET DEFICIT
Government revenues from taxes of all kinds and from bonds total NIS 96.1
billion since the beginning of the year, up from NIS 90.2 billion over the
comparable period in 1997 -- a 1.6% increase in real terms. Israel's
domestic budget deficit for October 1998 amounted to NIS 655 million; the
accumulated total domestic deficit for 1998 is now NIS 5.23 billion,
compared to NIS 4.7 billion in August 1997. The public sector debt
(including the Bank of Israel and the Jewish Agency) totaled 2.4% of GDP.
Total government debt at the end of September 1998 was NIS 380 billion (in
current prices), up from NIS 358 billion at the end of 1997. NIS 100
billion of this amount was foreign debt.
* BALANCE OF PAYMENTS
The balance of payments current account deficit in the second quarter
totaled $540 million, a drop of 25% compared to the same period in 1997,
due to a similar drop in the trade and services accounts. The foreign
trade deficit (excluding ships, aircraft, fuel, diamonds and seasonal
adjustments) dropped by 14% compared to the same period in 1997. For the
first time, exports in the third quarter to Latin America and Russia
dropped, and they continued to fall vis-a-vis Southeast Asia and Japan.
Exports to the rest of the world also slowed, due to turmoil in the
world's financial markets. Imports (seasonally adjusted) increased in the
second quarter by 0.5% over the first quarter, while exports declined by
an average of 1%.
* FOREIGN INVESTMENT
Investment by foreign residents in Israel totaled $500 million in the
second quarter, compared to $1.5 billion in the comparable period last
year. Real investment amounted to $400 million, compared to $600 million
for the comparable period in 1997. These figures reflect both the decline
in privatization in Israel and the decline of share offerings in the U.S.
(www.bankisrael.gov.il)
Bank of Israel - Gabi Fishman, 972-2-6552712
* TEL AVIV STOCK EXCHANGE DEVELOPMENTS
In October 1998, the Tel Aviv Stock Exchange saw considerable fluctuations
in trading and index levels, reflect worldwide developments. A 9.8% drop
in the General Share Index at the beginning of the month was followed by a
10.5% rise; the overall change for the month was -0.3%. The TASE-100
dropped 0.2%, after a 4.4% drop in September. The Maof-25 rose by 0.5%,
following a 5.2% drop in September. Total trade on the TASE in October
reached approximately NIS 7.3 billion, compared to NIS 6.3 billion in
September.
(www.tase.co.il)
Tel Aviv Stock Exchange - Ofer Simchoni,
972-3-5677411
FOREIGN TRADE RELATIONS:
* ISRAEL AND MEXICO IN DISCUSS FREE TRADE AGREEMENT
The Industry and Trade Ministry's deputy director for foreign trade, Dr.
Gabriela Cohen, has begun a new round of talks with Mexican official
Gerardo Traglosheros on a free trade agreement between Israel and Mexico.
Bilateral trade totaled $80 million in 1997, 92% of which consisted of
Israeli exports, a rise of 33% from a year earlier. Israeli exports to
Mexico include chemical products, machinery and electrical equipment,
medical equipment and optical instruments. Imports consist mainly of food
and agricultural products, machinery and mechanical devices, and textiles.
(www.tamas.gov.il)
Industry and Trade Ministry - Haya Peri,
972-2-6220340
* AZERI ECONOMICS MINISTER TOURS STOCK EXCHANGE
Azerbaijan Economics Minister Namig Nasrullayev recently toured the Tel
Aviv Stock Exchange in order to study the continuous trading method, to
aid in the establishment of an Azeri stock exchange in 1999. Today, a
growing number of Israeli firms operate in Azerbaijan, and trade and
economic cooperation between the two countries is increasing.
(www.tase.co.il)
Tel Aviv Stock Exchange - Ofer Simchoni, 972-3-5677411