Bank of Israel predicts end of recession in 2003

Analysts foresee GDP growth under 2% in 2002, surge in unemployment
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The Bank of Israel predicts that Israel's gross domestic product will grow by less than 2% in 2002. The bank's analysts also predict that unemployment will surge next year.

"Indicators show that the marketplace is still recessionary. A reversal will happen some time in 2002, after the U.S. market recovers," said today Michel Strawczynski, VP of the Bank of Israel research department.

"However, in 2002 the growth rate will be lower than 2%, and unemployment will remain on the rise," he said, speaking at a conference called Government budget ¿ a tool for growth or atrophy.

According to Strawczynski, government policy must address the jobs market to prevent the income gap from growing. The growing disparity in income, he said, stems from the growth pattern in Israel, in which hi-tech sectors are expanding and the highest-educated get the highest salaries.

In recent years, said Strawczynski, the gap has widened despite government intervention aimed at keeping it in check.

"For the government to influence this trend, it must view this gap as an issue of top priority, much like its growth and employment goals," he said.

He added that steps to decrease the disparity does not necessarily involve increasing any budgets.

Two policy changes that would boost demand for Israeli workers, Strawczynski said: limiting the number of work permits given to foreign workers, and stronger enforcement of the minimum wage law, which would make hiring foreign workers less worthwhile. "Raising the minimum wage is not advisable, since it increases the cost of the work and may lead to the layoffs of Israeli workers," he concluded.

In addition to encouraging the demand for Israeli workers, Strawczynski recommends giving larger incentives to Israelis who join the workplace. He offered appointing a professional committee that would recommend the necessary changes for that purpose.

He also called for changes in the direct taxation system, which would reduce tax paid on work and increase taxation on capital. "A change in transfer payment regulation (meaning, subsidies) is also called for, to create an incentive for workers to keep their jobs," said Strawczynski.