HSBC counters Treasury’s economic recovery forecast

HSBC expects only moderate growth of 2.8 percent in 2013 before a rebound of 3.4% in 2014.

December 20, 2012 22:46
1 minute read.

Economy. (photo credit: Courtesy)

Not everybody is convinced that the Israeli economy will emerge from its slowdown next year: HSBC announced Thursday it expects moderate growth of 2.8 percent in 2013 before a rebound of 3.4% in 2014, in tandem with improving global demand.

“Until recently, the Israeli economy has been fairly resilient to slowing global growth,” the British multinational financial-services company said in a report. “GDP growth remained fairly steady from mid-2011 to mid- 2012, averaging 3.2%. Nevertheless, growth slowed to 2.9% in [the third quarter of] 2012...and leading economic indicators suggest that this trend will spill over into 2013.”

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The Treasury recently updated its 2013 growth forecast to a surprising 3.5% of GDP, predicting that the economy will receive a greater boost than previously expected from offshore production of natural gas. The Bank of Israel is expected to update its 2013 growth forecast, which currently stands at 3%, early next week.

In contrast to the Treasury’s optimism, HSBC said it expected natural gas production to contribute 0.6% to GDP by 2014 but only 0.2% to tax revenues, reaching 1% by 2020. It did not say how much natural-gas production should impact the economy next year.

The report pointed out that several business surveys are trending downwards, reflecting contraction in both export and domestic orders. In the third quarter, export growth stalled despite the boost received from the new Intel plant, and private consumption per capita declined 0.4% as unemployment drifted higher and real wages remained stagnant, the report said.

Indicators of consumer confidence suggest growing household pessimism, partly due to the one-percentage- point increase in value-added tax that was imposed in an attempt to stem the growing fiscal deficit, HSBC said.

Factors that could reduce domestic demand in 2013 include a contraction in residential investment and the likely fiscal consolidation following the January 22 election, the report said.

The deficit is expected to reach 4.2% of GDP in 2012, and significant fiscal adjustments will be necessary to reach the 2013 deficit target of 3%, it said.

The report predicted that weak domestic demand and slack in the labor force should limit inflation to about 1.7%. The shekel is likely to appreciate to about NIS 3.60 per dollar on the back of an improvement in the current-account balance as natural-gas production commences in the second quarter, reducing energy imports.

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