Israel Business Forecast Report Q4 2012

Israel Business Forecast Report Q4 2012 - new country guide report published
2013-01-01 00:39:54 - Israel Business Forecast Report Q4 2012 - a new country guide report on

Elevated risks of instability in Israel´s neighbours, including Jordan, Lebanon, Syria and the West Bank and Gaza, have raised political risks, and investors´risk appetite may be tempered by the potential for a spillover of instability into the country´s borders. We hold to our view that the Bank of Israel will lower its benchmark interest rates by 25 basis points to



2.00% before end-2012, as we see economic growth struggling amid the weaker external climate.

Major Forecast Changes

Lacklustre external demand is weighing on the Israeli economy, and weak data have led us to revise down our 2012 real GDP growth forecast from 2.9% to 2.8%. Fiscal policy will become less supportive over the coming quarters, and leading indicator data bode poorly for the prospects for private consumption and gross fixed capital formation.

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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