Central bank survey points to recession

The accelerated decline in business activity in the quarter encompassed all sectors and was led by a slowdown in industrial exports.

January 22, 2009 06:56
2 minute read.
Stanley Fischer good

Stn Fischer good 88 248. (photo credit: Ariel Jerozolimski)


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Business growth in all sectors of the economy contracted significantly in the fourth quarter of 2008, pointing to growing signs of a recession in the economy, according to the Bank of Israel's quarterly companies survey. "In the fourth quarter of last year, businesses and companies experienced a slowdown and a further deterioration in the rate of expansion of business activity compared with the previous quarter... However, the extent of the slowdown was bigger than expected," the central bank said Wednesday in its quarterly survey. "Furthermore, the companies reported a decline in the number of employees." Researchers at the Bank of Israel emphasized that for the first time since the second quarter of 2003, the total net balance of general activity in the business sector, which provides an early indication of the state of the economy in the quarter, had fallen into negative territory, signaling a recession. The net balance is calculated from the seasonally adjusted net balance of the activity in all industries weighted by the share of each industry in total business-sector product. The accelerated decline in business activity in the quarter encompassed all sectors and was led by a slowdown in industrial exports. In response to the slowdown in business growth, industrial companies and those in the trade and services sector reduced the number of workers during the fourth quarter. Sources of raising finance deteriorated for companies in all sectors, especially for companies active in trade, construction, transport and communications. The companies report evaluated 520 companies and businesses. Sector-by-sector analysis showed that industrial companies suffered a slowdown in orders in the domestic market and a continued decline in business activity and sales, especially by small businesses. Trade and services businesses reported a plunge in foreign and domestic sales and demand, which they expect to continue to be impacted by the global and local economic situation and the security situation in Israel. For the first time in many months, the hotel and tourism sector saw a decline in hotel stays by Israelis, compared with the same quarter a year earlier, while hotel stays by tourists rose. Based on reservations received for the next quarter, companies in the sector expect a downturn in activity in coming quarters. The average inflation rate projected by survey respondents for the 12 months through December 2009 dropped significantly to 1.7 percent, from the 3.5% predicted in the previous survey, pointing to expectations by companies of a fall in prices. The percentage of companies expecting inflation over the next 12 months to be within the government's price stability target range of 1% to 3% rose to 70% from 41%, in the previous quarter. The companies surveyed expect that the dollar will cost NIS 4.14 on average at the end of December 2009, compared to NIS 3.9 three months ago. They forecast an average dollar level of NIS 3.96 by the end of the first quarter of this year.

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