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© Bank of Israel Passages may be cited provided source is specified Catalogue # 3077508120/8 http://www.bankisrael.gov.il Printed in Israel by Ayalon Press, Jerusalem Part 1: Review of Recent Economic Developments, July to December 2007 Main developments Aggregate and by-industry real activity During the period reviewed—the second half of 2007—the The improvement in economic activity in the period reviewed rapid economic growth that has been in evidence since 2003 was due largely to external factors, and was supported by continued. In 2007:Q3 GDP rose by 5.6 percent, led by the economic and political policy. The predominant factor was expansion of business-sector product, which was up by 7.3 the persistence of global economic growth in spite of the percent. In contrast with previous periods, domestic resource effect of the subprime crisis. Fiscal policy, which acted to use was predominant, its increase outstripping that of GDP alleviate the tax burden and the public sector debt while and leading to a rise in imports and reduction of the current maintaining a balanced budget, together with monetary account surplus. policy, which kept the interest rate at a relatively low level, supported economic growth, and the security situation did The expansion of domestic and global demand, expressed not substantially restrict economic activity. In addition, inter alia by a rise in energy and commodity prices, served the benefits of economic expansion were reaped by the to intensify inflationary pressures and accelerate the rate public, as expressed in the strong income effect on saving of price increases, so that during the period reviewed the and consumption.
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