Israeli Economy Will Recover Quickly Says IMF
In a report issued in early March, summarizing the Israel economy for 1998, the International Monetary Fund (IMF) stated that the Israeli economy will begin to recover sometime in 1999, with Gross Domestic Product increasing 2.3%, compared to 2% last year. The IMF further predicts that beginning in 2000, significant acceleration can be expected in economic growth, with GDP rising 3%, and at an annual rate of 3.5% in 2001-2003. The report , which was completed in mid-February and submitted to the IMF directorate, further states that the inflation rate in Israel will drop to 4.5% in 1999, compared to 8.6% last year, meeting the government's original target. The IMF expects the inflation rate to fall to 3% in 2000 and to 2.8% in 2001-2003. Additional improvement in the balance of payments is also expected. The current deficit in the balance of payments in terms of GDP will drop to 2.6%, compared to 2.8% last year, and 3.3% in 1997. The IMF report anticipates that unemployment in 1999 will reach an average 9.3% peak, compared to 9.2% in 1998, and 7.7% in 1997. Unemployment is expected to drop to 8.8% in 2000, and 7.5% in 2001-2003.
To achieve the above results, the IMF report states that a number of basic conditions must be met: the profitability of the business sector and exporters must be improved; implementation of the 1999 state budget and structural changes must be meticulously implemented; the wage framework without any real wage increments must be maintained; and the short-term real interest rate must be reduced to 5% by the end of 1999. (Note: the current short-term real interest rate is 8.5%). The report also warns that a number of factors could prevent the Israeli economy from emerging from recession this year: continuation of the global economic slowdown and the consequent shrinking of international trade; uncertainty resulting from the upcoming general elections; concern with regard to the implementation of the Wye agreement and the continuation of the peace process.
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