Bank of Israel ups 2007 growth estimate to 4.6%

The move comes a day after the central bank surprised Israel's financial markets by cutting its benchmark interest rate half a percentage point to 4.5 percent.

By ROBERT DANIEL, MARKETWATCH
December 27, 2006 08:00
2 minute read.

MarketWatch: In-depth global business coverage The Bank of Israel on Tuesday increased its estimates of the country's economic growth for 2007 and reduced the expected jobless rate, citing factors including signs of significant growth in fourth-quarter economic activity plus an improving global economy. The move comes a day after the central bank surprised Israel's financial markets by cutting its benchmark interest rate half a percentage point to 4.5 percent. Most economists were looking for a quarter-point reduction. The bank cited lower-than-target inflation and the shekel's strength against the dollar for the move. The central bank, in a report Tuesday, said Israel's gross domestic product should grow 4.8% in 2006 and 4.6% in 2007. Those estimates are up from earlier forecasts of 4.6% and 4%, respectively. The GDP-growth figure was 5.2% in 2005. The unemployment rate is now seen at 8.5% in 2006 and falling to 8.1% in 2007. The previous estimates from the central bank were 8.8% and 8.4%, respectively. The 2005 jobless rate was 9%. Also figuring in the revised forecasts, the central bank said, were greater investments in major industries in 2006, which along with the job growth indicate that companies plan to increase production. "The global economic environment in 2006 is more favorable, as seen in the updated forecasts from the International Monetary Fund on world trade and rate of growth in the developed countries," the Bank of Israel statement said. "There is no significant change in the IMF's forecasts for growth and world trade in 2007." And the strength of the capital markets inside and outside Israel "points to improved expectations of corporate activity and profits," it said. "Consumer expectations and expectations of the business sector, as seen in the companies survey of the Bank of Israel, show no significant change since the previous update." A major revision in the bank's forecast is in growth of fixed investment. The bank sees that growth at 6.2% in 2006 and 7.1% in 2007, versus its previous forecasts of 2.1% and 4.8%. The figure for 2005 was 2.9%. Also revised upward was growth in exports, excluding diamonds, to 9.5% in 2006 and 8.4% in 2007. The previous forecasts were 6.6% and 7.6%, and the 2005 growth was 7.5%. "As a result, the surplus of balance of payments in goods and services ... is now expected to reach $2.2 billion this year and $5.3b. in 2007, compared with only $300 million in 2005," the Bank of Israel said. The bank's previous estimates for 2006 and 2007 were $700 million and $4.1b. The central bank also reiterated a point that many economists have made: Third-quarter economic activity in Israel was hurt less than expected by the summer war in Lebanon. MarketWatch: In-depth global business coverage (MarketWatch)


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