Recent Economic Developments, 101


Between October 2002 and March 2003 (the period reviewed) the recession persisted. This was due to the continuation of the Intifada and the contraction of global demand, especially in the high-tech industry. The recession is reflected in the decline in the composite (State-of-the- Economy) index throughout the period reviewed, as well as in the Bank of Israel’s Companies’ Survey for 2003:I, with a continued slowing of real economic activity in all the principal industries. Although export data and the manpower survey for 2002:IV indicate some recovery, the data for 2003:I are not encouraging, Manufacturing exports constitute the only area which has expanded in the period reviewed, though the pace at which they have grown has slowed in recent months. According to labor market indicators, employment has deteriorated since the beginning of 2003, as reflected by the trend rise in unemployment and the number of job-seekers, alongside the decline in the number of employee posts. These developments indicate that the improvement in 2002:IV was only temporary, and did not persist in 2003:I. In contrast with these developments, the improvement in the political-security situation with the ending of the war in Iraq and the decision by the US government to grant the loan guarantees led to a rally in the capital markets, localcurrency appreciation, and the reduction of inflation expectations. It is still too early to tell whether these developments signal a turnaround in real economic activity, however.

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