(Recasts, adds central bank governor comments)
By Steven Scheer
TEL AVIV Dec 11 Bank of Israel Governor Karnit
Flug said on Sunday that an expansion of U.S. spending once
Donald Trump takes office could benefit Israel's economy.
Asked what it means for Israel should President-elect Trump
embark on a dramatic fiscal expansion, Flug said: "If the
policies that will be followed will imply a stronger recovery of
the U.S. economy that's good for Israel.
"As a small, open economy we are very dependent on our major
trading partner and the United States is a major trading
partner," she added.
The United States is Israel's third-largest trading partner
after Europe and Asia.
While the U.S. economy is improving and the Federal Reserve
has started to raise interest rates, Europe is still struggling
and dealing with very accommodative monetary policies.
"We are in the middle," Flug said at the Globes business
conference. "We can't react differently to different parts of
the world...When we set our policies, we look not at what other
central banks are doing but how it affects the main forces in
Israel's economy is expected to grow close to 3 percent in
2016 after a 2.5 percent pace in 2015. Economists forecast
growth of 3-3.5 percent next year.
Flug said Israel is in a good economic situation, especially
taking into account global events, while the labour market is
"We see shortages in certain branches of the economy, wages
are moving up so all the indications are that the labour market
is approaching full employment," she said.
As a result, Israel's benchmark interest rate
will likely not go below a current 0.1 percent, where it has
stood for 21 straight months, although Flug declined to say when
the central bank might start raising rates.
Flug said she did not want to go to zero or negative
interest rates since there are risks in such policies.
"If you can get to right point without going that route,
it's better not too. For the Israeli economy, we didn't have to
go as far as going to that unconventional path."
The central bank next decides on rates and will update its
economic estimates on Dec. 26.
(Reporting by Steven Scheer; Editing by Ros Russell)