2013-10-17 05:13:36 - Recently published research from Business Monitor International, "Israel Business Forecast Report Q4 2013", is now available at Fast Market Research
Political risks remain elevated, with potential for an US military attack on Syria increasing risks of spill over effects. Investors' risk appetite may be tempered as a result.
We project consumer price inflation (CPI) averaging 1.9% and 2.3% in 2013 and 2014, respectively, from 1.7% in 2012. Relatively modest inflationary pressure will allow the Bank of Israel (BoI) to keep interest rates low, which we forecast to come in at 1.00% at end-2013 and 0.75% at end-2014.
Major Forecast Changes
We project real GDP growth in Israel to come in at 3.5% in 2013 and 3.2% in 2014, respectively, down from our previous forecasts of 3.7% this year and 3.8% in the next. Despite the beginning of natural gas production in the Tamar
gas field in H113, the economy will remain in a soft patch, with export growth remaining slack as a result of slow growth in key export markets, while fiscal austerity will hit consumer demand in H213 and 2014.
Full Report Details at
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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 quarters. As a result, a sharp drop in prices is unlikely at this stage.
A sharper-than-expected downturn in the global economy would hit Israel's economy badly. Exports have already been hit by stagnant demand in Europe and the US, and a further slowdown in external demand would see the outlook for exports deteriorating even further.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Political Risk Analysis
Peace Talks To Remain Constrained By Political Realities
- Israeli-Palestinian peace talks resumed on August 14 after three years of suspension, yet cracks in the facade have quickly emerged. We retain our view that despite ongoing efforts by US Secretary of State John Kerry, the current political configuration in Israel, combined with the increasing fragmentation of the Palestinian Authority, will hinder any progress in negotiations.
TABLE: ISRAEL POLITICAL OVERVIEW
Long-Term Political Outlook
Will Long-Lasting Peace Be Achieved?
- Over the next decade, Israel will continue to face external security threats from militant groups Hamas and Iran-backed Hizbullah. Downside risks to stability stem from the potential for renewed conflict with Hizbullah across Israel's northern border, although any peace settlement with the Palestinians would pose upside risks.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Economic Activity I
Sluggish Growth In 2013 and 2014
- We project real GDP growth in Israel of 3.5% and 3.2% in 2013 and 2014, respectively. The domestic economy will remain in a soft patch, with austerity measures hitting private consumption, while weak growth in export markets will hinder the country's external position. Risks to the outlook are lying firmly to the downside as a result of the potential for an escalation of the civil war in neighbouring Syria.
TABLE: ECONOMIC ACTIVITY
Dovish Monetary Policy To Continue
- Uncertainty surrounding the appointment of Israel's new central bank governor will not fundamentally change the BoI's dovish monetary policy stance. We forecast interest rates in Israel coming in at 1.0% in 2013 and 0.75% in 2014, before increasing gradually from 2015 onward.
Profitability To Remain Modest
- Profitability in the Israeli banking sector will be modest in 2013, as deposit growth declines while banks will have to deal with stricter regulations. That said, underlying threats to stability will remain minimal.
TABLE: BANKING SECTOR ASSETS, LOCAL CURRENCY TERMS
Economic Activity II
Chart Of Day: Unemployment Rate Increasing In H213
- We expect the joblessness rate in Israel, which came in at 6.9% in May, to gradually increase over the coming quarters. We forecast unemployment to average 6.9% and 7.0% in 2013 and 2014, respectively, compared to 6.7% in 2012.
Economic Activity III
Chart Of Day: Consumer Confidence Unlikely To Decline Further
- After falling 8.5% in year-on-year terms in June, we expect Israel's Bank Hapoalim consumer confidence index is unlikely to decline much further. That said, consumer confidence will remain weak over the coming quarters.
Economic Activity IV
Chart Of Day: PMI To Fall Below 50
- Israel's Bank Hapoalim Purchasing Managers' Index (PMI), which measures activity in the manufacturing sector, fell by 1 point to 50.8 in April. While manufacturing activity will remain above 2012 levels, when PMI averaged 43.6, the index is unlikely to remain above the 50 level which separates expansion from contraction in 2013.
Chapter 3: 10-Year Forecast
Long-Term Outlook Slow But Steady
- We are forecasting steady, if unspectacular, growth for the increasingly developed Israeli economy over the long term. As ever, political risks pose downside risks to our GDP growth forecasts.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY
TABLE: MENA - ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS
Chapter 5: Key Sectors
Full Table of Contents is available at:
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