A Top Ten List
Columnist takes a look into the crystal ball and makes some predictions about
the Israeli economy in 1995.
PINCHAS LANDAU SPECIAL TO THE JEWISH NEWS
I
can't stand predictions, espe-
cially about the future." Thus
spoke the legendary film
mogul Sam Goldwyn. But for
once, his taste was out of line
with that of the general public.
Most people love hearing and
reading predictions, preferably
about the future and especially
about the near future.
How many people really care
what the population of China will
be in 2050? Heck, most people be-
low the age of 50 can't even get
worked up about the fact that in
20 or 30 years their governments
probably will be unable to pay
them the retirement pensions
they have been contributing to or
have been promised by a sup-
posedly beneficent state through-
out their working lives.
But, like in Israel, suggest that
the government will fall in the
spring, hint that the stock mar-
ket will rally. in the summer, or
even breathe about a coming de-
valuation, and their attention will
be riveted.
In any event, journalistic tra-
dition demands that the turn of
the year be accompanied by ei-
ther a review of the outgoing an-
num or a preview of the coming
one. Since the former option is
both boring and depressing, the
latter is the only one left. So here
are some predictions for the Is-
raeli economy in 1995:
1.Recession? Yes, but let's get
our terminology right. In the con-
text of the Israeli economy in the
1990s, a recession is when the
pace of economic growth recedes
below 3 percent per annum, not
when it slips below zero, as in
mature Western economies.
Even so, having to slow down
from 120 kilometers-per-hour to
50 is dangerous and vehicles in
poor shape may go off the road.
2. Interest rates: These will re-
main high. They'll fall in nomi-
nal terms as inflation drops but
actually rise in real terms, so the
squeeze on business will get
worse. With the government in-
creasingly incapable of cutting its
spending, monetary policy will
continue to carry the main bur-
den.
3. Inflation? Looks sure to
drop, but there are too many fac-
tors involved for anyone to guess
Pinchas Landau is a columnist
for The Telegraph, Israel's
business daily.
happen, and anyway, where the
bottom will be is more important
than when.
8. Real wages: Won't rise much
in most sectors. People in private
sector firms receiving big wage
increases can expect their em-
ployers to go bust and/or they or
their colleagues to be fired.
Public sector wage rises are
unlikely in 1995 after the sham-
bles in 1994, but 1996 is an elec-
tion year, which is more
promising.
9. The trade deficit: Has got to
fall after 1994's stupendous $8
billion black hole. If the import
boom doesn't subside, the rest of
the economy will. The trade fig-
ures attract much less publicity
than the inflation and unem-
ployment figures, but are infi-
nitely more important.
Every month in which the sea-
sonally adjusted deficit is over
$500 million brings a major cri-
sis nearer. If there isn't a clear
improvement in the trend by the
spring, ignore items 1-5 above,
move out of shekels and into for-
eign currency. Two days before
the crisis blows, buy shares in
major Israeli exporting compa-
nies traded in New York. (No one
will tell you when two days be-
fore arrives. You'll just have to
guess).
10. The rest of the world: This
large area, by no means devoid
of interesting features, is worth
keeping an eye on. Places like
6. The dollar: Could yet be Mr. Russia and China simply cannot
Frenkel's savior. If the American be ignored, but don't waste any
currency finally gets its act to- more time on Balkan baloney or
gether and has a good year (as African horror stories.
The really dramatic stuff may
was widely forecast for 1994, to
no avail), the shekel will fall twice well develop closer to Israel: Will
as hard against the dollar as Algeria fall to the fundamental-
against the Bank of Israel's bas- ists, or will Egypt go first? Will
this be the year that Saudi Ara-
ket of currencies.
This is the easiest, and per- bia goes bankrupt? And will
haps the only way to square the somebody finally polish off Sad-
circle of keeping control of the dam Hussein — or will he outlast
shekel while maintaining high the Iranian regime he was un-
able to destroy in eight years of
domestic interest rates.
7. The stock exchange? It's war, but that is now crumbling
hardly likely to recover so long as under pressure from its own pop-
real interest rates remain high. ulace?
Whether some or all of these
There also is the tax mess to con-
things happen and whether, as
tend with.
Nevertheless, the bear market is most likely, entirely unexpect-
is now into its second year (the ed events grab center stage, one
Mishtanim index peaked in No- prediction is a bankable certain-
vember 1993, well before the col- ty: dull it won't be. LI
lapse in February 1994), so
sometime during 1995 we could
see a bottom. It probably won't
how far and how fast. The end of
the vegetable nonsense (sky-high
prices at the end of 1994) will
generate low CPI figures in ear-
ly 1995, but wages and other in-
puts could generate problems
later on.
4. Housing prices: Will get cut
by the scissors of rising supply
and falling demand, with the lat-
ter especially vulnerable to high
real interest rates. The extent of
the fall will vary significantly by
area.
5. Devaluation! The biggest
bugaboo. The Bank of Israel un-
der Jacob Frenkel will fight
against it tooth and nail, because
if it comes, there goes its last
chance of getting inflation down.
But if interest rates stay too
high, too long, the risk of specu-
lative foreign money doing to the
shekel what it did to the pound,
lira and peseta in September
1992 becomes very real.
Concerned investors should
keep checking interest rates, in-
flation — and their blood pres-
sure.
The dollar
could be the
Bank of Israel's
savior.
Specially compiled by The Jenssalem Post
—$1 EQUALS 3.3646 NIS (shekels) -"Close Price 1/3/95
Economists Predict A Good 199
Economists standing at the mistake of letting the economy
threshold of 1995 paint a rosy heat up too fast.
Although some economists
pieture for Israel, although with
don't foresee any major crisis,
clear shades of gray.
None of them expect infla- many are worried about the
tion to increase and most of burgeoning.rade deficit, which
them predict consumer prices could lead to a real crisis in a
will moderate. By contrast, couple of years.
Another area of concern is
they foresee slower economic
growth and a sharper devalu-
ation of the shekel against the
currency basket.
Interest rates eventually will
crawl down, according to most
economists, but only slightly,
because Bank of Isra.el Gover-
nor Jacob Frenkel will be very
careful not to repeat last year s
agriculture, which has recent-
ly suffered several shocks from
the rapid population growth
and from the opening of the Is-
raeli market to produce from
the autonomous areas.
Pre-election profligacy also
is worrying economists.
Jordanian Says Yes To Isra
•
-
-
Even thoug4i-horethah 20,000 . that one of the reasons for start-
Israelis have visited Jordan _ingitheagene : is the progress
since :the-,ipeace treaty was ofpeace ih•f,heiegion,:whiehiS
Signectlifi-.1994:- while only .a expected to: bring economic de
handful o€Jordanians has Vis - . velOpriletit : to Jordan and
ited Israel a Jordanian 2..-.-Itourism • between Jordan
newSpaper reported that at Israel,
an d the u
-•
least one agency:
.
specializing
in travel 'Lands' are:poptilar.destina•-::-
_
tions. for:Jordaniansr-and:she.i
;:.
to Israel
The figures on tourism be streseed that jOrdanianshaire::
problerns with the . :peace
tween the two 'countries were -
repOrted-to : thesKnesSet Eco- process and could deal with the
nomiCs COmmittee - daring a re- new state of affairg.....:.=.-
said her agency.:
cent tOur.Ofthe Jordan Val ley
However,the ratio. -could -: a lso wishes to open
change as the result of an inn IsraeltOkeep m touch with Jor
tia.tive by Jordanian . entrepret.: . :.:danian tourists there and take
who has advantage ofthp.inoteaSein,the.‘
Opened - a travel agency .spe number of groups gamg be
'Owen- the tfArc -eopntrie§:s:-:
in travel:toUrael.::
Theopening of Hajazin's _':::Stio.,:addd -that .$11.6 '.haPes.
agency,
Wth4i..alSal.aain, was theite.Willbe'COOperatiOn be
repOrted. in the Jordanian tween the two countries'
tourism ministries to encour
neWSPaper Al-Bilaad
.• :Ms. 1-Iajazin told the paper age-this
.
It'll
Bread To B i
As of August, wheat imports to wheat imports frorn other
will be allowed from every- countries will not interfere with
where, the Israel Industry and prior commitments and is -ex-
Trade Ministry announced. pected to reduce the price of
Israel has a commitment th flour and baked goods because
buy annually from the United European and Canadian wheat
States 1.6 million tons of is cheaper.
Israeli flour mills use about
grains, including wheat, and
actually purchases'about 2.4 750,000 tons of wheat ammal-
ly.
million tons a year.
Opening the Israeli market
Evergreen Shares Being Sold
In a private placement,
Evergreen Canada-Israel In-
vestment, the first Canadian 1,297,170 shares at $8.4 per
entity to be listed on the Tel share will be sold to a group of
Aviv Stock Exchange, will sell Israeli and foreign investors
21;43 percent of its outstand- headed by Zvi Meitar and
ing shares to an investor group Shmuel Meitar.
for $11 million.