* Most economies to see growth by end 2009, early 2010
* Recession, unemployment will continue
By Joseph Nasr
EILAT, Israel, July 2 (Reuters) - The global financial crisis has past its worst stage and most economies could return to growth by the end of 2009 or early next year, Bank of Israel Governor Stanley Fischer said on Thursday.
"The global economy has gone past the height of the crisis," Fischer, a former First Deputy Managing Director at the International Monetary Fund, told an economic conference in the Red Sea resort city of Eilat.
An improvement in the performance of stock exchanges, which tumbled in the wake of the crisis last year, is the clearest sign yet that the worst was over, he said.
Fischer linked the improvement to "unprecedented measures" taken by the U.S. Federal Reserve as well as central banks in Europe and Japan, all of which boosted liquidity by funnelling large sums of cash into their economies.
He said most economies could continue in recession and would see unemployment rising until well into 2010.
"In real terms ... the crisis is still unfolding. Therefore unemployment is expected to continue to rise and negative growth will continue in most countries," Fischer added.
His remarks coincided with U.S. government figures that showed the unemployment rate for June rose to 9.5 percent -- the highest since a matching rate in August 1983 -- after employers in the world's largest economy cut 467,000 jobs in one month.
Fischer, also a former Citigroup vice-chairman and a former professor of U.S. Fed Chairman Ben Bernanke, said that Asian and emerging economies were weathering the financial storm better than developed ones.
On the Israel economy, which has been bogged down by the global meltdown, Fischer said growth could return by the end of this year.
Fischer told the conference, where lawmakers, regulators and economists met for the second and final day to debate the financial crisis, that data suggest a second quarter contraction of less than the annualised first quarter figure of 3.9 percent.
NO INFLATION THREAT
The Bank of Israel forecasts the economy will contract 1.5 percent in 2009 and grow by 1 percent in 2010.
Exports of goods and services, which account for nearly half of Israel's economic activity, fell by 37 percent in the first three months of the year.
Addressing fears of inflation once the crisis is over, Fischer said: "If growth is steady there is no threat of inflation."
He added that plans by the Israeli government to increase its value added tax (VAT) by 1 percent as well as planned hikes on the price of water, could push consumer prices up more than expected, which will require the Bank of Israel to intervene. Still, he estimated Israeli inflation would ease to 2 percent in a year from a rate of 2.8 percent in May.
He urged other central bankers to resist raising interest rates at the first signs of inflation and wait until higher prices trickle through to the wider economy.
Fischer has cut Israel's key lending rate by 3.75 points to 0.5 percent, where it has stayed since March.
Although at odds with the finance ministry in recent months over supervision of salaries at the central bank, Fischer praised the current 2009 and 2010 budgets -- which still need parliamentary approval -- for being responsible.
He said budget deficit targets of 6 percent of gross domestic product this year and 5.5 percent in 2010 should be met.
Fischer said Israel's fiscal position was better than the U.S. and other developed countries, whose deficits will top 13 percent of GDP.
He said public debt burdens abroad will soar and could pose a problem for investors in coming years. (Editing by Steven Scheer and Richard Hubbard)