The Bank of Israel will soon raise its growth forecast for 2010 because the economy is growing faster than expected, Bank of Israel Governor Stanley Fischer said Thursday.
"Our current forecast is for gross domestic product growth of 2.5 percent in 2010, but we will soon revise it upward," he said at a conference in Tel Aviv. "According to the latest figures by the Central Bureau of Statistics, the economy grew at an annualized rate of over 4% in the fourth quarter."
Fischer said Israel had experienced a V-shaped recession during the global economic crisis, in which the economy fell into a sharp recession and recovered faster than expected. GDP expanded at a brisk 3% annualized rate in the third quarter of 2009, after growing 1.1% in the second quarter and contracting 3.2% in the first quarter.
The Israeli economy expanded at a preliminary rate of 0.5% in 2009 and is expected to grow 3.5% in 2010, according to the statistics bureau.
"We're talking about a dramatic change that started last summer - a very significant change," Finance Minister Yuval Steinitz said Thursday. "If we managed to return to annualized growth rate of over 4% in the last quarter of 2009, we have a good chance of accelerating the pace of recovery."
Bank Leumi on Thursday raised its GDP growth forecast for 2010 to 3.5%, from a previous estimate of 2.7%, on expectations that private consumption will expand at a faster pace than in 2009 and future exports and imports will continue to increase. Investment would likely stabilize in 2010, after shrinking last year, as the global economy recovers from the financial crisis, Leumi said.
"Since 2003, we have been enjoying a current-account surplus, which comes at the price of a strengthening shekel," Fischer said. "In addition to the pressure on the appreciation of the shekel, we have a stronger economy, which is luring investors to Israel. As long as the world thinks we are a strong economy, more investors will prefer to invest in Israel."
Fischer defended the central bank's interventionist foreign-currency purchase policy, saying it had contributed to moderate the sharp appreciation of the local currency to help the economy during a global recession.
"It is clear that we will not continue to do this forever," he said. "At the same time, we will be watching and are not indifferent to the exchange-rate situation."
Fischer said the country's budget deficit in 2009 was estimated to be below the target of 6% of GDP, at just above 5%, as a result of higher tax revenue. Steinitz confirmed that the budget deficit was 5.15% of GDP last year, according to recent data.
"In 2010, the deficit target is 5.5% of GDP, but it is very likely that it will much lower than that," Fischer said.