Israeli Economy One of World's `Happy Stories,'

Israel’s economy is one of the “happy stories” in the world today and the country isn’t in need of fiscal stimulus, Nobel Prize-winning economist Paul Krugman said.

Israel was one of the small number of advanced countries, such as Canada and Australia, that were able to weather the crisis well, Krugman said today at an economic conference in Tel Aviv. Part of Israel’s success was due to a “boring” banking system, which wasn’t engaged in any “wild stuff,” he said.

Israel’s rebound from the global financial crisis has been powered by exports, which make up almost 50 percent of gross domestic product. Bank of Israel Governor Stanley Fischer said on June 18 that the bank expects economic growth of 3.7 percent this year.

“Israel’s economy is one of the happy stories,” Krugman said. “The case for fiscal stimulus is not necessary. Israel has been able to manage the crisis with monetary policy.”

Israel’s economy expanded an annualized 3.6 percent in the first quarter, led by exports. Unemployment is likely to drop to an average of 7 percent from 7.7 percent in 2009, according to the bank’s forecast.

The recovery began in the second quarter of last year, when the economy expanded 1.4 percent. Growth picked up to 3.9 percent in the third quarter and 4.5 percent in the fourth quarter.

Fischer has raised rates by 1 percentage point since August as Israel emerged from the global recession. He left the benchmark interest rate unchanged for a second month at 1.5 percent on May 24, as growth slowed and the European debt crisis threatened to hinder the global recovery.

http://www.bloomberg.com/news/2010-06-22/israeli-economy-one-of-world-s-happy-stories-nobel-winner-krugman-says.html