With all the attention on disastrous political and military developments around the world, analysis of the economic fallout has been put on the back burner. But it will be increasingly important as time goes on. Some recent developments provide a preview of what to expect:
- Janet Yellen, despite an obvious desire to start raising interest rates, ended up leaving them at near zero, thereby continuing to penalize savers and to add to the excess liquidity sloshing around the system.
- Chinese industrial production declined by almost nine percent, year-over-year.
- World trade is still twelve percent below its pre-2008 peak.
- Of the famous BRICS only India is doing fairly well. The rest are either stagnant or declining.
- Commodity prices continue to fall and deflation threatens the developed world, but massive liquidity is failing to stem the tide.
Is it any wonder that Israel’s economy is slowing down from its lofty heights? Europe, its most important export market, is not only economically stagnant and grossly over-indebted, it is now subject to what can only be called an Islamic invasion of peoples from the Middle East, swarming out of that region into what they either consider a “promised land” of relative peace and prosperity or in some cases, perhaps many, a ripe target for Islamification and terrorism.
Growth in China, long seen as an alternative to Europe, is slowing markedly, despite the declining costs of the raw materials it must import.
The United States, another important market, is doing somewhat better than Europe, but its expansion is almost entirely centered on the service sector, and its formerly booming alternative oil production sector is now in parlous shape due to the continuing low oil prices. With larger quantities of Iranian crude entering the markets, a price recovery is highly unlikely.
Still, the world covets the products of Israeli ingenuity. Panic and pessimism should be avoided because the Israeli economy, despite political paralysis over natural gas development and a genuinely inexplicable and a highly questionable (and potentially dangerous) decision to import 20,000 Chinese construction workers, is in comparative terms in good condition.
All that is required is that the productive sector be left alone as much as possible to do its own thing. It brought Israel from the brink of economic disaster to remarkable prosperity. It will keep it there if left alone. Unfortunately that is a big “if.”