Flug Says Israeli Economic Growth to Recover in Fourth Quarter

Israeli growth is set to recover in the fourth quarter as the effect of the Gaza conflict dissipates, Bank of Israel Governor Karnit Flug said.

While the economy is growing at less than its potential, it is “definitely not” on the way to recession, despite the contraction in the third quarter, Flug told a Manufacturers Association of Israel conference in Eilat today.

“The effect of Operation Protective Edge on private consumption is expected to be temporary,” Flug said, referring to the Gaza clashes in July and August. “The effect on tourism will be for a bit longer. But I think we are in the same growth environment that we have seen in the recent past of under 3 percent.”

Israel announced this week that its economy contracted for the first time in five years in the third quarter, as thousands of rockets fired from the Gaza Strip kept tourists away and hampered production. Gross domestic product shrank an annualized 0.4 percent, after expanding 2.2 percent in the three months through June.

Israeli growth has slowed in the past couple of years mainly due to muted global demand, Flug said. The Bank of Israel’s “very expansionary” monetary policy, as well as the government’s “expansionary, but not very expansionary” fiscal policy is helping to support growth, she said.

‘More Comfortable’

The central bank has cut rates 12 times since 2011 and purchased foreign currency to weaken the shekel and help exports. All 19 economists surveyed by Bloomberg say the bank will leave its benchmark unchanged at 0.25 percent next week.

The shekel has lost about 11 percent against the dollar since the beginning of August. While the central bank doesn’t have a target, the exchange rate that prevailed until three or four months ago was “too appreciated,” Flug said.

“The current exchange rate provides an environment that makes it more comfortable for the tradable sector in general to compete globally, and certainly it’s more comfortable for us,” Flug said.

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