This week marks the first anniversary of the current government’s assumption of power. Over the course of a year plagued by the aftershock tremors of the pandemic and additional challenges presented by geopolitical turmoil, Avigdor Liberman’s Finance Ministry has had its hands full managing the country’s economy. But how does the economy look after a year in those hands?
To put it briefly, a lot of numbers that you’d like to go down have gone up. However, compared to the rest of the world, we’re still doing alright. In terms of inflation, cost of living and housing prices, Israel is trending upward. There are, though, a few bastions of solace that can be seen in a decreased unemployment rate and a slew of government measures enacted to aid small businesses that have struggled through the pandemic.
Inflation has gone up
Over the past year, several attempts have been made by Finance Minister Liberman to reduce the ballooning cost of living, but with limited results in such a short amount of time.
According to the Central Bureau of Statistics in Israel (CBS), the consumer price index – a key inflation-tracking data point – rose by 3.4% from June 2021 to April 2022. This means more shekels spent on goods and services, in other words, a higher cost of living.
Israel’s inflation rate is the highest it’s been in a decade, at 4% as of April 2022 (which is the latest data released by the Bank of Israel). The inflation rate, which represents the decline in value of the shekel, has been discussed at length in the past year, particularly in recent months, as it has approached and subsequently broken through the Bank of Israel’s inflation target of 1%-3%.
In April, Prof. Karnit Flug, vice president of the Israel Democracy Institute and the former governor of the Bank of Israel, elaborated on the state of inflation (then at 3.5%).
“Inflation has risen,” she said. “The latest reading for the last 12 months was 3.5% inflation, slightly over the upper bound of the target range, which is between 1% and 3%. It’s much, much higher than it was before.”
At present, the average inflation rate for the countries included in the Organization for Economic Co-operation and Development (OECD) – of which Israel is a member – is around 9%. Compared to that, Israel’s 4% seems tolerable.
The CBS offered a summary of the gradual rise seen over the past few months, noting that 4% is the highest rate since June of 2011, propelled by prices of transportation, communication, food, education, culture, entertainment and housing. And speaking of housing...
Houses are more expensive
HOUSES ARE more expensive. The House Price Index has increased by 9.1 points over the last year (from June ‘21 until March ‘22), according to the CBS. That 13.31% increase means if you were looking for a house that can comfortably fit a family of four, you should do your best to be the heir to a sizable fortune.
Prof. Danny Ben-Shahar, director of the Alrov Institute for Real Estate Research and faculty member at the Coller School of Management at Tel Aviv University.
“There haven’t been enough housing starts over time. They’re not continuously, stably rising with the needs of the population,” he said.
“Israel’s population growth is the highest among OECD countries, meaning that in order to fill the needs for new households, there needs to be around 55,000 to 60,000 new houses a year, and that needs to be continuous.”
As COVID winds down, there is hope that housing construction can catch up to meet the soaring demand of the past few years. The government has been approving land development that will lead to construction at a decent pace, but the results might still take a while to present themselves.
“There haven’t been enough housing starts over time. They’re not continuously, stably rising with the needs of the population.”
Prof. Danny Ben-Shachar
Unemployment has gone down
Unemployment has decreased from 5.2% in June ‘21 to 3.5% in April ‘22, representing a 1.7% decrease over the past year.
One factor in this decline could be the Finance Ministry’s efforts to aid small businesses in January as part of a bevy of aid measures taken to assist the struggling sector. A plan was formulated to decrease the number of closures occurring in response to economic hardships in the wake of the Omicron variant. That included financial relief worth more than NIS 1.3 billion, the adjustment of bureaucratic procedures in businesses’ favor, aid in obtaining state-guaranteed loans, and assistance to small and medium-sized exporters.
“We want to allow individuals, the self-employed, businesses and industries that have been affected to get through the complex period with the appropriate assistance,” Liberman said after announcing the plan. “We have learned from previous discoveries that the thing that hurts the economy the most is closures, and therefore, we’re avoiding them and maintaining a trend of growth and decline in unemployment. We will continue to monitor the data, act responsibly and ensure that no one is left behind.”
However, it might be a little hasty to congratulate Liberman for something on which he may have yet had little impact, said Prof. Dan Ben-David, head of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University.
“The fact that Israel’s unemployment rates are low is due more to the resiliency of the Israeli economy,” he said. “In general, unless they do something really bad, governments do not have much of an impact on economic issues within such short time spans after taking office.
“This government’s most important achievement in the socioeconomic realm is having passed the first budget in years,” Ben-David noted. “It’s crazy that this should be considered an achievement, but that’s a testament to how dysfunctional our political system actually has been in recent years.”