"2009 was a better year than we expected, but it was not successful enough. Today, I give you the Bank of Israel Annual Report for 2009; it includes an analysis of why the economy was strong and what we did - the Bank of Israel and the Ministry of Finance - to preserve the Israeli economy," said Governor of the Bank of Israel Prof. Stanley Fischer as he handed the Annual Report to Minister of Finance Yuval Steinitz.
Fischer added that the Israeli economy emerged from the crisis in an extraordinary fashion compared with other countries, and that the Ministry of Finance was an important reason for this. "The report includes some of the challenges facing us, and it is worth reading," he said.
Steinitz replied, "The Bank of Israel fulfilled its important role in coping with the crisis, and I thank you for the report. Our collaboration is always critical and essential, especially in times of crisis. We all worked together, and I thank you for the report. You are the government's economic advisors."
The 2009 Annual Report states that there was no housing bubble last year, despite the sharp rise in prices. However, if housing prices continue to rise in 2010, they will separate from levels in line with market fundamentals (the cost of housing services, demand and supply, the interest rate, etc.) In other words, there will be a bubble.
The Bank of Israel calculates that between the mid-1990s and 2007, housing prices fell 25% in real terms, but between December 2007 and November 2009, they rose 25%. The Bank of Israel considers this rise in prices as a correction to the prior drop, and concludes that there was no bubble. It nonetheless cautions that if the present trend continues, "this conclusion will be in doubt".
The Bank of Israel raised its 2010 GDP growth forecast to 3.7% from 3.5%, and predicts 4% growth in 2011.
Published by Globes [online], Israel business news - www.globes-online.com - on April 21, 2010
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