2013-01-15 13:37:18 - Israel Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

Elevated risks of instability resulting from ongoing tensions between Israel and Gaza have raised political risks, and investors´ risk appetite may be tempered by the potential for a spillover of instability in the country.

We see the current account coming in deficit to the tune of 0.8% and 0.3% of GDP in 2012 and 2013 respectively, coming in negative territory for the first time since 2002. The current account´s deterioration mainly results from declining export growth.

Major Forecast Changes

Lacklustre external demand and elevated political risks are weighing on the Israeli economy. As a result, we have revised down our forecasts for real GDP growth, and we project Israel´s economy expanding by 2.7% and 3.1% in real terms in 2012 and 2013 respectively,

 

 

compared to our previous forecasts of 2.8% in 2012 and 3.3% in 2013. Fiscal policy will become less supportive over the coming quarters, and leading indicator data bodes poorly for the prospects for private consumption.

Key Risks To Outlook

House prices in Israel have risen rapidly in recent years, raising concerns that a bubble has formed in the property market. However, an increase in supply, coupled with macroprudential measures on the part of the government designed to bring down prices, have seen the market cooling in the past few months. As a result, a sharp drop in prices is unlikely at this stage.

A sharper-than-expected downturn in the global economy – which could be sparked by a credit event in Europe or a ´hard landing´ in the Chinese economy – would hit Israel´s economy badly. Exports have already been hit by stagnant demand in Europe and elsewhere, and a further slowdown in external demand would see the outlook for exports deteriorating even further.

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