Sunday, October 3, 2010

Fisher warns us of a real estate bubble

Several days ahead of an International Monetary Fund (IMF) meeting in Washington, Governor of the Bank of Israel Prof. Stanley Fischer spoke to reporters about Israel's economy in particular, and his views on the global economy in general.

Fischer opened, "The Israeli economy is in a good situation. But we are in a global economy that is in a very complicated situation, so we must avoid complacency. The situation here is good because the economy grew at 4.6% in the second quarter, the rate of unemployment fell almost to the level before the crisis (6.3%), inflation is in the middle of the target (1.8%), but there is a quick rise in housing prices, which is a main component in the CPI. Apartment prices are rising very quickly." Fischer estimated that the government's budget deficit will be 4% this year, "and even a bit less", and he added that the figures are positive, "especially when you take into account the situation in the global market."

Last week, the Bank of Israel raised its 2010 growth forecast to 4.1%, based on surprisingly strong second quarter GDP figures, though it cut its 2011 forecast to 3.8% from 4.%, on lower forecast growth in the West, and in the US in particular. Regarding the lower growth forecast, Fischer said, "It’s a small difference. There is a lot of uncertainty about the global economy, and everyone needs to take it into account. We haven't completely passed the crisis; the environment does not compare to what there was 3-4 years ago. Growth is very, very moderate in the US, and growth forecasts are very low. Growth in Europe is expected to be slow, and so we cannot say that the situation for us will definitely continue to be as good as it is today." The Governor hinted that if housing prices continue to rise, he will continue the interest rate hikes he has implemented in recent months.

Answering a reporter's question, Fischer said, "There is a slowdown in the pace of the rise of housing prices, but if there is no change on the supply side it's a problem. It must be noted that there is a rise in housing starts but if it does not continue we will need to take other steps. There are enough crises that began in the housing market, and we will not let it happen in Israel."

Source Globes

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