Businesses expect growth continuation in fourth quarter

Slowdown in orders for manufacturing companies; construction companies lament over high land prices constituting constraint on expansion of activity.

By SHARON WROBEL
October 20, 2010 23:42
3 minute read.
Illustrative photo

stocks 311. (photo credit: AP)

Business growth is expected to continue to expand across most industries in the fourth quarter of the year except in the manufacturing industry, which reported a slowdown in the increase in orders both from the domestic and export market, according to the Bank of Israel’s quarterly companies survey published on Wednesday.

“Reports from companies participating in the survey show that economic activity continued to expand in the third quarter of 2010, at a pace similar to that since the beginning of the year and that they expect the increase to continue in the next quarter,” stated the central bank’s survey.

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In light of a slow recovery of the economies in the US and Europe and fear of reduced demand, the survey – based on the responses of 481 companies in various economic sectors – for the first time included one-off questions on expectations of a change in demand from these economies.

“Most answered that they did not expect a change,” stated the survey.

In response to the question of how they would react if in fact concern over a decline was realized, most answered that they would increase their marketing efforts in the domestic market and abroad, with a minority stating that they would cut their production or reduce prices.

Sector by sector analysis showed that in the third quarter of the year accelerated manufacturing activity encompassed both domestic sales and exports, while service companies reported that the increase was based on the domestic market activity.

Companies reported a rise in the number of their employees, and a marked and continued surge in their utilization of machinery and equipment.

Against this, they reported a slower increase in orders from the domestic market and from abroad, leading to a higher probability of a slowdown in this industry in the fourth quarter, the report stated.

Trading companies reported an increase in the volume of sales in the third quarter, surpassing its increases in the previous quarters. Companies in this sector forecast a further rise in sales in the next quarter. The rate of increase in the net balance of the number of employees slowed in the second and third quarters.

Growth in domestic sales boosted activity of business services companies in the third quarter. Meanwhile, the volume of sales of services abroad remained unchanged, thus moderating the rise in the volume of overall activity.

The number of employees increased, as did orders for the next quarter.

Businesses active in the hotel and tourism sector reported a rise in activity year-on-year similar to the continued rise since the beginning of the year. The increase in activity was derived mainly from the increase in foreign tourists’ bed nights, but bed nights of Israelis rose as well. Average revenue per room also grew, which was not the case in previous quarters.

In transport and communications, activity expanded in the third quarter. The positive picture was supported by company reports on an increase in the number of employees, greater utilization of equipment and expectations of further growth in the fourth quarter.

Construction companies reported no change in total construction works implemented in the third quarter.

“The extent of buildings constructed showed signs of an increase, but not a significant one, in the last quarters,” stated the report. “One notable feature in the third quarter was the significant decline in the number of building workers. This may be explained by the greater severity of the labor shortage constraint since the beginning of the year reported by the companies.”

In addition, construction companies lamented over high land prices constituting a constraint on the expansion of activity. They said that demand constraints are not serious, however.

The companies surveyed expect that the dollar will cost NIS 3.89 on average at the end of September 2011.

They forecast an average dollar level of NIS 3.78 by the end of the fourth quarter of this year. The dollar stood at NIS 3.70 on the day the survey was conducted.

The average inflation rate projected by survey respondents for the 12 months through October 2010 to September 2011 was 2.64 percent, which is in the upper limit of the government’s price stability target range of 1 to 3%. The percentage of companies expecting inflation over the next 12 months to be above the upper limit of the target range fell to 16%, from 19% in the previous quarter.


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