Where Is The Israeli Economy Headed? | Eli Hurvitz Conference

Bank of Israel Governor: “the Israeli economy has experienced a significant shock in recent months following the proposed changes to the judicial system... continued uncertainty has significant economic costs.”

Prof. Amir Yaron, Governor of the Bank of Israel | Credit: Michal Fattal

The Eli Hurvitz Conference on Economy and Society opened today in Jerusalem with addresses by the Governor of the Bank of Israel, Minister of Finance and senior leaders from the public and private sectors.

“We can change the policy, but we cannot change the rules of the game without a broad consensus. Every day that goes by, we pay the price for this: fewer investments, fewer initiatives, and a weaker shekel. The constitutional process must go hand in hand with a new social contract that will allow us to navigate the next chapters in Israel’s miraculous story." Yohanan Plesner, President, Israel Democracy Institute said in his opening remarks.

Bezalel Smotrich, Minister of Finance – “We, at the Finance Ministry are working on a program to grow the market. In the last year, the global economy has been in a crisis – the new inflation rate places the economy in a risk zone.

Israel led the recovery from the global Covid crisis for many reasons. Correct economic responses during the crisis and grants to businesses allowed them to stay afloat and get back to business following the pandemic. In times of crisis, governments have a decisive role, and following the global crisis, we may need to use an a-cyclical policy approach in the near future.”

Prof. Amir Yaron, Governor of the Bank of Israel: “The Israeli economy is dynamic and stable. Following the changes in the judicial system, the economic certainty has diminished, but this does not mean there won’t be investments in Israel, but it does mean significant continued uncertainty.”

“Alongside the painful discourse on mortgage interest rate increases, we must remember that if inflation continues the harm to mortgages will be even more severe. Most of the public's shekel deposits are in their bank accounts. The banks must behave fairly, and if the banking system does not do this on its own, we at the Bank of Israel will make sure that they proactively contact customers and offer savings routes with a higher interest rate than current accounts.”

On the state budget: “the budget framework is not overly expansive, it corresponds with the Bank of Israel's goal, however, from the perspective of the budget, it lacks growth generators for both physical and human capital, and it constitutes a negative contribution to growth in the economy.

In summary: “the Israeli economy has experienced a significant shock in recent months following proposed changes to the judicial system. This does not mean that all of a sudden the world will stop trading with Israel, but it does mean that continued uncertainty has significant economic costs. Therefore, the decision-makers must restore certainty about the economy in Israel, as the legal changes progress, this should be achieved through broad consensus and dialogue in order to stabilize the economy in Israel."

Prof. Karnit Flug, IDI’s VP of Research and the William Davidson Senior Fellow for Economic Policy – “It is reasonable to assume that passage of the judicial overhaul will lead to a further institutional enfeeblement and a deepening of sectorial policies, of the sort we have seen in the coalition agreements and in the recent budget.”

“The potential short-term damage but this is nothing compared to the long-term damage. if the judicial overhaul, in a version similar to the one presented by the coalition, gets passed.

Prof. Itai Ater, Senior Fellow, Israel Democracy Institute, presented research that shows the economic implications of the judicial overhaul: “Even the most cautious of predictions shows dramatic negative impacts on the economy.”

Yali Rothenberg, Accountant General, Ministry of Finance – “The key is balanced perspective. The world isn’t black and white- rather holistic. Our (Israel’s) economy needs certainty. For the credit agencies, (Israel’s) economic certainty is based on broad agreement regarding the judicial reforms in the public. The independence of the Bank of Israel is one of the major cornerstones. The budget, which was passed a few days ago – also provides market stability.”

Yogev Gradus, Director, Budget Division, Ministry of Finance - “The demographic crisis is already here. The direction the education system takes will determine the future of our entire country.”

“Today Israel has almost 10 million inhabitants and this unusual growth creates pressure on the infrastructure. If we take the characteristics of labor productivity and calculate them according to the composition of the population, the standard of living in Israel will be similar to that of Eastern Europe. The gap is due to high-birth rate and low labor rate. Therefore, improving the level of skills is expected to be one of the engines for raising the standard of living for all of us.

The second rule for improving the standard of living is to improve the education system. We have increased investment per student, but over the past 20 years, there was no objective improvement in their education level. Notwithstanding investment in the public education system in recent years - we have only gone backwards. But in a few decades it won't even be our main problem. In another 50 years, 50% of first grade students will be members of the ultra-Orthodox sector, while the current rate of ultra-Orthodox who complete their high school matriculation certificate is only 5%.

Prof. Zvi Eckstein, Dean of the Tiomkin School of Economics and Head of the Aaron Institute for Economic Policy, Reichman University – “We have dealt with previous world crises excellently. We were very stable and protected, due to the (Israeli) hi-tech and gas. The high-tech industry contributed 40% to the national growth in the past six years – this is unprecedented in the world. The judicial overhaul initiatives are damaging to this sector – and that is in addition to the worst (National) budget passed in the past 20 years. How can we overcome this hurdle? We go back to October 2022.”

Shira Greenberg, Chief Economist, Ministry of Finance – “There is a lot of economic uncertainty, and the coalition agreements increase this. We must improve the human capital of the minorities to ensure a strong economy in the future. It takes many, many years for these investments to materialize, and we have no time to lose.

Increasing allowances and assisting in the distribution of food stamps in a way that does not depend on integration into employment - create negative incentives for integration into the employment market and will cause a significant loss of income, and accordingly, necessarily negative changes in the standard of living.

According to the OECD, the State of Israel ranks first in terms of discrimination against women. In the State of Israel not all jobs are open to women.

Israel’s growth is below the economy’s potential growth. I want to emphasize that the recent reduction of the growth forecast takes into consideration the fact that the economy faces many global and local risks. There is a lot of economic uncertainty. As for the impact of the judicial overhaul - the exact numbers are less important. The purpose of the estimates is to present to decision makers the risks they are facing – these should not be taken lightly. The estimates cannot precisely foretell the exact impact – but the estimate that the negative impact will be great – should not be ignored. These risks must be taken into account when determining a long-term sustainable policy, one that can only be achieved through a broad consensus that will ensure the separation of powers and the strength of the judicial system.”

Greenberg added on the coalition agreements – “the budgets given to the ultra-Orthodox populations who do not teach core curriculum in their schools – previous speakers presented data regarding future developments. In order to ensure the long-term stability of the Israeli economy, we must be able ensure education for the ultra-orthodox sector that will enable them to integrate into the job market.

Another important point I would like to make, not only because I am a woman and a (public servant at the level of a) director general, is that the issue of gender gaps - this must be much more in the public discourse. According to the OECD, the State of Israel ranks last in discrimination against women. In the State of Israel, not all jobs are open to women. The median salary of women compared to men is in last place before the end among the OECD countries. When we reach a situation where 50% of first grade students will be ultra-Orthodox, 50% of them will be women, and when we talk about integrating ultra-Orthodox in the job market, we must not forget the women as well. Please keep it up even when I'm no longer in my position.”

Prof. Jacob Frenkel, former Governor of the Bank of Israel – “Since the establishment of the country, we have not seen such a swift depreciation of value. And this is not due to external factors – rather from within. Using majority rule as an excuse is a distortion of the meaning of democracy.”

We are fighting for our home, for democracy, for the soul of the country. I say clearly - now is the time for the messages that come out of this important conference - about professionalism, integrity and responsibility – be heard.

The Eli Hurvitz Conference on Economy and Society—formerly the Caesarea Economic Policy Planning Forum—is widely recognized as Israel's most influential economic conference. For 30 years, the Conference has served as a crossroads where public discourse and professional knowledge in economics and society meet, with the aim of improving the decision-making processes in the administration and improving the quality of Israel's social and economic policy for the benefit of the entire public.

The Eli Hurvitz Conference on Economy and Society, (May 30-31) was held with the participation of ministers and Knesset members, directors-general of government ministries and senior leaders from civil society, academia, as well as the public and private sectors.

A series of team-led research and policy recommendations on issues closely related to the conference sessions will be presented during the conference at the Orient Hotel in Jerusalem and online on IDI's website.