| The main points of the Bank of Israel's quarterly publication Recent Economic Developments (RED) (No. 119), to be published in the next few days, are given below: |
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The main economic indicators and the Bank of Israel’s Companies Survey for 2007:Q3 point to the continued expansion of economic activity. |
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Despite the sub-prime mortgage crisis in the US and the slowdown in the global rate of growth, Israel’s rapid growth rate was maintained. |
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The gradual improvement in the labor market continued: unemployment fell, the rate of participation in the labor market rose, and the wage increased, with a slowdown in the rise in productivity. |
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The CPI rose by only 1.4 percent in the last twelve months, reflecting the strong effect of the shekel/dollar exchange rate. At the same time the probability that the rate of inflation would be within the target price-stability range in the next twelve months increased. |
| In the period from April to September 2007 (the period reviewed) economic activity in Israel continued to expand. According to developments in that period, the economy is at an advanced stage of the growth cycle. Evidence for this is seen in the contraction of the output gap, with a slowdown in the rise of productivity, an increase in the wage––and hence a rise in unit labor costs––and the creation of upward pressure on (mainly domestic) prices. |
| The CPI and all its components rose in the period reviewed, but the pace of the rise moderated in the third quarter. According to the Bank of Israel Companies Survey for the third quarter, activity continued expanding in all the principal industries, reflecting the sustained increase in domestic demand. Exports also grew in this period, despite a deterioration in the terms of trade. |
| The gradual improvement in the labor market continued in the period reviewed: in 2007:Q2 the rise in the rate of participation in the labor market and in the employment rate was maintained. The unemployment rate continued downwards, indicating that the rise in demand for labor was outstripping its supply, expressed in an accelerated rise in labor costs. |
| Despite the ongoing growth in the period reviewed, the cumulative rise in the CPI in the last twelve months came to only 1.4 percent, reflecting the extent to which it is affected by the exchange rate, which reversed its trend in that period. Over the twelve-month period as a whole the shekel appreciated against the dollar, offsetting the domestic inflationary pressures. Nevertheless, the probability has risen that inflation in the next twelve months will be within the target price-stability range. |
| Israel’s capital market is also influenced by the upheavals in the world’s financial markets caused by the sub-prime mortgage crisis in the US, and in the period reviewed the market changed direction, but overall it showed that it was relatively robust, with prices rising higher than their pre-crisis level. This may be attributed to Israel’s overall positive economic fundamentals. |