income from labor, as a result of an increase in employment and in wages. there was an increase in home prices and in the value of financial assets. outstanding consumer credit ( nonhousing credit to households ) increased by 25 percent over the past three years, as interest rates declined. together with the lower prices on imported consumer goods, against the background of the appreciation of the shekel in recent years, which led to a rapid increase in the import of consumer goods, these all supported the rapid increase in consumption. is the growth in private consumption a phenomenon that is unique to the israeli economy? apparently not. before the global economic crisis, global growth was relatively balanced, in that it was led not only by private consumption, but also by other uses, chiefly investment. in the years after the exit from the “ pit ” of the crisis, since 2012, in most countries growth has been led by private consumption, while investment has been stagnating. it is worth noting that the first quarter of 2017 looks to be different. in most economies, including israel, the figures for the first quarter are unusual in the sense that investment was again a significant factor in contributing to growth. however, it is obviously too soon to determine that this quarter indicates a change in trend or a turnaround. of course, there are positive aspects to the fact that private consumption increased relatively rapidly. beyond the fact that it has led to an increase in the standard of living in the short term, the increase in private consumption also covered for the more moderate growth of exports and investments, which was at least partially a result of exogenous factors. with the help of 2 / 4 bis central bankers'speeches macroeconomic policy, the increase in private consumption thus contributed to smoothing the business cycle. it enabled the economy to continue growing and to lead to a clear improvement in labor market data as i outlined earlier. however, the fact that growth was led by private consumption also comes with risks. those risks mainly have to do with the question of whether such growth is sustainable, or whether it comes with a risk of a sharp turnaround. the answer to that question has to do with the sources upon which the economic growth rests. as long as growth relies to a greater extent on increased consumer credit, a sharp increase in the future debt servicing burden may put the ability to continue consuming in the future at risk. as long as the increase relies more on an increase in asset prices — the “ wealth effect ” — and as long

as this turns out to be temporary, the turnaround in prices may lead to a turnaround in private consumption as well, and therefore in activity. a study conducted by arnon barak of the bank of israel research department, which was published this week, shows that in recent years, the main factor leading the increase in private consumption ( according to a long - term comparison estimated in the study ) is the increase in income from labor. the increase in financial asset prices and in home prices made less of a contribution than income from labor. household debt figures show that despite the increase in outstanding mortgages and consumer debt, the debt to gdp ratio and the debt to disposable income ratio increased only moderately. at the macro level, therefore, the risk is moderate. however, the rapid increase of consumer credit in recent years requires closer monitoring on the part of regulators, extra caution on the part of the public and credit providers, and an informed examination of repayment capabilities when providing or taking out credit. the interim conclusion, therefore, is that given the relatively weak state of the global economy, the growth of private consumption contributed to maintaining a strong growth rate and a robust labor market. the fact that most of the increase in consumption relies on an increase in income from labor makes it more stable, but we must be particularly attentive to the part of the increase that is supported by increased credit and asset prices. so if the economy is growing solidly, the labor market is strong, and the engine of growth is private consumption, is there something that needs to concern us? the question is whether growth that relies mainly on private consumption in a small and open economy can persist and be strong enough to reduce the gap in the standard of living relative to the other advanced economies. in this context, it is important to remember a number of facts in relation to the two main uses that have been weak in recent years : investment in the primary industries contributes not only to activity in the short term, but also to future production capacity, and investment in machinery and equipment means adopting the technologies inherent in that equipment, meaning that investment contributes to future growth by increasing production capacity and through its contribution to an increase in productivity. exports make it possible for a small and open economy to exploit its relative advantages and the economy of scale. export industries in general, and also in israel, are therefore characterized by relatively high productivity. how have investments and exports developed in recent years? investment as a share of gdp in israel is low