Recent Economic Developments, 97


Economic developments during October 2001–March 2002 (the period reviewed) attest to a continuation of the contraction of activity at the beginning of the period and some moderation of the slowdown towards the end, due in part to temporary factors (Table 1, Figure 1). Developments during the period were accompanied by shocks in the financial markets, which culminated in local-currency depreciation, a rise in the yield on bonds, the acceleration of inflation expectations, and a rise in prices in 2002:IV. All this occurred against the backdrop of the exacerbation of Israel’s security situation, continued expansion of the budget deficit, and the sharp interest-rate cut in December inter alia on the basis of unfulfilled expectations of a return to fiscal restraint.

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