BOI: Strong growth continued into first quarter

Relatively high growth in real economic activity indices were reflected in a 3.2% rise.

May 4, 2006 23:23
2 minute read.
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bank teller 88. (photo credit: )


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The fast pace of real growth set over the past two-and-a-half years continued into the first quarter of 2006, led by growth in the business sector, the Bank of Israel said in a report released this week. "Growth of industrial production and services accelerated in the periods surveyed [the fourth quarter of 2005 and first quarter of 2006], and the beginning of recovery was detected in the construction sector," the central bank said. Relatively high growth in real economic activity indices were reflected in a 3.2% rise in the combined index on the state of the economy in the period surveyed, as well as in positive labor market trends, stability in financial markets, high yields on the Tel Aviv Stock Exchange and a significant increase in the volume of trade, the Bank of Israel said. Despite rises in both the number of foreign workers in the country and the rate of Israeli participation in the labor market, the rate of unemployment fell to 8.8%, though the rate of unemployment among unskilled workers (defined as having up to 12 years of education) stayed "particularly high" at 12.5%, the central bank noted. Employees' average real wage per position deteriorated in the period surveyed, yet change levels varied widely among economic sectors. Wages rose in business and financial services, but declined in the agricultural, construction and transportation-storage-communication sectors. The cost of labor per production unit continued to decline. While the survey of companies indicated growth in activity among all sectors of the economy, including construction, foreign trade appeared to be lagging in terms of both exports and imports of goods in the period surveyed. Private consumption remained stable, in contrast with the consistent growth over the past two-and-a-half years, the central bank noted. Continued growth in domestic demand, a weaker shekel (in the period surveyed), rising energy prices and movement in the direction of fully realized production potential led to acceleration in the pace of both actual price hikes and inflation expectations. The consumer price index in February and March (up 0.6% and 0.3%, respectively) were far above both expectations (0.2% and 0.1%) and inflation figures for those months in past years, bringing the total inflation rate for the 12 months leading to March to 3.6%, beyond the central bank's price stability target of 1%-3%. "The developments described in the period surveyed, together with the narrowing gap between the shekel and dollar interest rates, motivated the Bank of Israel to raise the interest rate gradually in the fourth quarter of 2005 and the first quarter of 2006, following eight months in which it was not changed," the bank said.

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