Forecasts Conference
Bank Hapoalim Chief Economic Advisor: "Not all policymakers have internalized the great risk of a slowdown in 2024"
"Without making fiscal adjustments, there is a high risk that the deficit will reach 6% of GDP," Bank Hapoalim's Chief Economic Advisor Prof. Leo Leiderman said at Calcalist's Forecasts Conference
"The news right now, in terms of the short term, is not particularly encouraging. Most macro forecasts, including ours, point to a high probability of a decline in GDP per capita and the standard of living in 2024. Some would call it a recession, but I prefer to call it a risk of a sharp slowdown in the growth of the economy," said Prof. Leo Leiderman, Bank Hapoalim's Chief Economic Advisor at the Calcalist Forecasts Conference.
"The main problem today that limits growth in the economy is the lack of workers. There are workers recruited into the reserves, foreign workers who are not here, workers who have been evacuated and businesses that have closed. These problems do not uniformly affect the economy, and mainly affect industries such as the construction industry," he said.
According to him, not all policy makers are aware of the seriousness of the situation: "The reality on the economic front is well known by households and the entire business sector. However, it seems to me that I would not be wrong if I claim that at least some of the decision-makers and policy-makers have not yet internalized the great risk of a sharp slowdown in growth in the Israeli economy in 2024," Leiderman said.
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Leiderman pointed out that the main policy tool in the hands of every government is the state budget. "The challenge facing the government in 2024 is not simple. On the one hand, to allow an increase in defense spending, reconstruction spending and support for the populations most affected by the war. On the other hand, to maintain the discipline of the fiscal framework, which has supported the growth and achievements of the economy in recent decades," he says.
Leiderman warned in his words that: "The current composition of the state budget does not provide an answer to the need to reduce as much as possible the depth of the recession and prepare the economy for reconstruction and recovery after the war. A significant diversion of funds from sections that do not contribute to the growth of the economy to sections that support growth is required today. The budget department in the Ministry of Finance and the Bank of Israel provided concrete examples of steps that can be taken as early as 2024. There is a great responsibility here for the budget makers: the wrong composition of expenses may deepen the slowdown in economic activity."
According to Leiderman, it is important when building the budget to pay attention to its composition as well as the deficit target. "Without making fiscal adjustments, there is a high risk that the deficit will reach 6% of GDP and even beyond that in the coming year. From my familiarity with the capital market, both local and abroad, and with the conduct of the credit rating companies, I see great importance in setting a deficit target that does not exceed 5% of GDP in 2024. This, accompanied by a transparent and credible commitment to a gradual reduction of the deficit in the following years," Leiderman said.
"Increasing the deficit target above 5% of GDP will not reduce the recession but will increase Israel's financial risks and the cost of raising capital. That is, increasing the deficit in an unreasonable manner will not solve the problem of slowing growth," Leiderman said.
