Economic activity drops even further

Companies paint grim picture of near-term business prospects.

By SHARON WROBEL
May 5, 2009 09:59
2 minute read.
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Business growth in all sectors of the economy continued to contract in the first quarter of 2009, as a sharp drop in demand slowed activity, according to the Bank of Israel's quarterly companies survey. "The proportion of companies reporting a decline in activity was significantly higher than those reporting an increase, and was even higher than at the peak of the last recession early this decade," the central bank said Monday in the report. "For the first time, the recession spread to the hotel sector in the first quarter. The net balance of business activity in the sector was negative." The report, which evaluated 526 companies, showed that the net balance of business activity in the economy as a whole continued to drop in the first quarter, mainly because of a drop in demand. The net balance is calculated from the seasonally adjusted net balance of the activity in all industries weighted by their share in total business-sector product. Against this, researchers at the Bank of Israel pointed out that the deterioration of the financing situation reported in previous quarters moderated in the first three months of the year, and improved slightly among medium-sized and large companies. However, there was a sharp contraction in business activity within the hotel sector in the first quarter, after two years of expansion. Expectations for the second quarter point to a significant decline in orders. Central bank researchers emphasized that in contrast to the rest of the sectors surveyed, the hotel sector is continuing to suffer from a deterioration in credit and financing sources. Industrial and trade and services companies suffered a slowdown in orders in the domestic market and a continued decline in business activity and sales. These sectors expect further reductions in the number of workers in the second quarter. Looking ahead, the survey, which is based on companies responses regarding expectations and orders, pointed to another decline in business activity in the second quarter of this year. In the last quarter of 2008, 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, fell into negative territory, signaling a recession for the first time since the second quarter of 2003. "Already in the third quarter of 2008, the main index of the survey pointed to a slowdown in activity that was realized in the following quarter. These expectations deteriorated subsequently and in this surveyed quarter, and they still reflect a decline in the volume of activity," the report stated. "At the same time, though, the results of the expectations and orders items for the second quarter provide indication of a slight moderation in the decline compared with the negative balance of business activity in the first quarter." The average inflation rate forecast by survey respondents for the coming 12 months dropped to 1.4 percent, from the 1.7% predicted in the previous survey. The proportion 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 73%, from 70% in the previous quarter. The companies surveyed expect that the dollar will cost NIS 4.36 on average at the end of March 2010, compared to NIS 4.13 three months ago. They forecast an average dollar level of NIS 4.22 by the end of the second quarter of this year.

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