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The decline in business growth slowed down in the second quarter of the year, as the credit crunch eases, but low demand is still hampering a recovery in economic activity, according to the Bank of Israel's quarterly companies survey.
"The survey showed that in the second quarter of 2009, companies experienced a moderation in the contraction of business activity compared with the previous two quarters," the central bank reported Sunday. "The main factor limiting an expansion of business activity is demand. The majority of business sectors reported that credit difficulties had eased."
Bank of Israel researchers said the total net balance of general activity in the business sector, which provides an early indication of the state of the economy, continued to be negative in the second quarter but had improved moderately compared with the previous quarters. The net balance is calculated from the seasonally adjusted net balance of business activity in all industries, weighted by the share of each industry in total product.
Business activity continued to decline in the industrial, hotel, transport and services sectors, while it grew moderately within the communications sector and stabilized in the construction and trade sectors.
Companies reported a continued but more modest decline in orders in the second quarter. However, the construction, retail, services and communications sectors reported an expected increase in activity based on orders.
Companies' 12-month expectations for inflation rose during the second quarter to 2.8 percent, near the limit of the Bank of Israel's inflation target of 1%-3%. Thirty percent of respondents said they expect inflation to exceed 3%. Inflation was 3.6% in the 12 months through this June.
The percentage of companies that expect inflation to be within the government's target range dropped to 65% from 73% in the previous quarter.
The respondents expected that the dollar would cost NIS 4.20 on average by the end of June, from an outlook of NIS 4.36 three months earlier. The respondents forecast an average dollar level of NIS 4.02 by the end of the third quarter of this year, compared with a forecast of NIS 4.22 in the previous quarter.