Israel's recovery from the global economic crisis continued during the period reviewed. although there were signs of a certain slowdown in the rate of growth compared to its rate in the second half of 2009.
The continued increase in economic activity, which encompassed most of the principal industries and which was driven by domestic demand, led to a halt in the downward trend in stocks and to an increase in the number of employees. Investment in the principal industries continued to decline, however, and the rate of unemployment, that fell only slightly in the period reviewed, remained above its pre-crisis level.
Tax revenues continued to increase, but at a slower rate than in the second half of 2009. The domestic deficit is still lower than in other countries, and the debt/GDP ratio is not expected to show any significant increase.
The slowdown in the rate of recovery of the eurozone as a result of the crisis in southern Europe, which became more severe at the end of the period reviewed, could have a significant effect on Israel's exports. This effect was reflected to some extent in the period reviewed, in the decline in exports to some of the countries affected by the crisis.
In the period from January to April 2010 (the "period reviewed"), Israel's economic recovery continued in step with the recovery of the global economy. However, there were signs of some slowdown in the rate of growth compared with the trend at the end of 2009.
The expansion of economic activity, that encompassed most of the principal industries, led to a halt in the downward trend in stocks and to a slight improvement in employment, evident from the slow increase in the number of employees which exceeded its pre-crisis level. Nevertheless, investment in the principal industries continued to decline, the real wage remained low despite the fact that its erosion halted in the period reviewed, and the unemployment rate stayed above its pre-crisis level.
The economic recovery was also reflected in an increase in tax revenues, although the rise was slower than in the second half of 2009. Tax revenues exceed the budget estimates, thus reducing the domestic deficit below the seasonal path consistent with the deficit ceiling set in the budget. Thus the deficit continues to be low compared with that in other countries, and no significant increase in the debt/GDP ratio is expected.
The expansion of economic activity, reflected in continued GDP growth and the rapid increase in imports, was due mainly to the rise in domestic demand, and it brought the uses to their pre-crisis level. Gross domestic investment rose, as a result of the halt in the reduction of stocks, and private consumption excluding durables also grew. The increase in domestic demand was due to greater employment security, the increase in the value of the public's assets portfolio, the low level of the interest rate, and positive expectations regarding the continued recovery of economic activity. Nonetheless, exports declined, partly because of the slowdown in the rate of recovery in some of Israel's export targets.
The slowdown of recovery throughout the eurozone due to the crisis in southern Europe, which became more severe at the end of the period reviewed, may have implications for Israel's exports to the eurozone at large, due to their heavy exposure to the European market: about 33 percent of Israel's total exports (excluding diamonds) are directed to Europe. These implications, which manifested themselves to some extent in the period reviewed in the decline in exports to Greece and Ireland, include both a direct effect-a decline in European demand for Israeli exports-and the indirect effect on Israeli exporters' competitiveness of nominal exchange rate appreciation against the euro.