financial crisis in the economy. regarding the housing market, home prices have continued to increase at a rapid pace, increasing by about 8 percent in 2013, together with a rapid increase in the number of new mortgages taken out. the supervisor of banks adopted measures intended to reduce the risks inherent in mortgages and in their rapid growth. the recent measures adopted – which restrict the payment - to - income ratio and set out that at least one - third of the mortgage should be at a fixed interest rate – are acting to reduce the risk that households that took out a mortgage will have difficulty in meeting their payments, for instance in a situation where one of the household members loses his job, or if the burden of repayment increases due to an increase in the interest rate. the decline in the share of mortgages with an loan - to - value ( ltv ) ratio above 60 percent, and the decline in the share of mortgages with a payment - toincome ( pti ) ratio above 40 percent, indicate that the measures adopted have reduced the risk inherent in mortgages ( slide 9 ). with that, the continued rapid growth in the number of mortgages and in their weight in the bank ’ s credit portfolio are a risk factor, and if additional measures are required, we will not hesitate to take them. the increase in the number of building starts and completions that we witnessed in the past year, to almost 45, 000 starts and more than 40, 000 completions – higher than the basic demand for homes that is derived from growth in the number of households – is a positive development. if this trend continues – and we see that the government is making efforts in this direction – and if it includes areas of high demand, it will act to reduce the pressure and stabilize home prices. financial stability the picture of the stability of the economy can be presented in multi - dimensional form by way of a radar chart that includes real data, accounting data and survey data, as well as data that show the risk philosophy of israeli and global investors ( slide 11 ). the diagram for the end of january 2014 indicates that the financial system and the economy are stable. the red diagram reflects the situation at the end of 2008, and shows a picture in which almost all risk indices, both global and domestic, were at record high levels at the height of the global financial crisis. the blue diagram, which shows the levels of the current risk indices, indicates relatively low levels, with most of the measured

karnit flug : the macroeconomic situation and the stability of the financial system main points of address by dr karnit flug, governor of the bank of israel, at themarker financial conference, tel - aviv, 4 march 2014. * * * accompanying slides can be found in the hebrew version of the speech on the bank of israel ’ s website. the macroeconomic situation the global economy is continuing to grow at a moderate pace. growth in the us continues to take root – even though the recent data has been weak, apparently due to the harsh weather. in europe, the very moderate and fragile recovery is continuing, with some concern of deflation. in the emerging markets, there has been some improvement, although in some of the larger countries, mainly those that have current account deficits, there have been signs of weakness and fragility in recent months. together with the moderate recovery, global trade is also expanding. growth in israel moves in line with, and higher than, that of the other advanced economies, and we expect that both the correlation and the gap will continue this year as well ( slide 2 ). however, looking at recent months, we see a further slowdown in growth in israel, and the pace of growth declined from about 3 percent in the past year and a half to less than 2. 5 percent in the past two quarters, while business output grew in those two quarters by just 1. 6 percent ( slide 3 ). exports were the main factor in the slowdown in the third quarter, and there were signs of improvement in it in the fourth quarter., but at this stage, they are concentrated mainly in the pharmaceuticals industry and to a certain extent in the chemicals and electronics industries as well, and we have not yet seen the improvement expand to the other export industries. the labor market continues to show a mixed trend : the unemployment rate declined and is at a historic low thanks to an increase in employment rates that took place together with stabilization of the participation rate at a very high level ( slide 4 ). our assessment is that the decline in the unemployment rate reflects, among other things, a structural decline in the unemployment rate due to processes increasing labor market elasticity in recent years that led to a decline in the frictional and the natural unemployment rates. furthermore, most of the growth in employment in the past two years was in the public service industries – mainly in the non - governmental portion of the public services – while the number of israeli employees