Industry cuts 2008 growth estimate to 3.5%

Since the beginning of the year the shekel has gained about 6% against the dollar.

The Manufacturers Association of Israel on Sunday lowered its annual growth forecast for the economy and industry in 2008 to 3.5 percent from 4.3%, based on the steady appreciation of the shekel against the US dollar and the expected slowdown in the world economy. "The slowdown in the local economy will be mainly impacted by the expected slowdown in the growth rate of trade and services exports, which is revised downwards to 4.6% from 7.4% in the previous forecast," said Roby Ginel, head of the economics department at the Manufacturers Association. "In 2007, exports of trade and services grew by 8.7% compared with a year earlier." Since the beginning of the year the shekel has gained about 6% against the dollar, currently trading at NIS 3.59 per dollar. Manufacturers and exporters have been urging Governor of the Bank of Israel Prof. Stanley Fischer to cut interest rates by the end of the month by as much as 50 basis points (0.50%) to halt the shekel rally. Assuming that the dollar remains at its current level and taking a slowdown in the world economy and in particular in the US economy into account, economists at the association forecast a slowdown in the growth rate of the Israel business sector to 4%, down from 5% previously. The association added that over the past four years, business sector gross domestic product grew by 6.6% a year on average. The industrial sector is also expected to grow at a slower pace of 4% in 2008 compared with 4.7% according to an earlier forecast. Ginel added that industrial growth will be curtailed by the revised export growth rate of 5.9%, down from 9% in the association's original projection. Last year, industrial exports rose by 12.5% in real terms, following similar growth of 12% in 2006. Furthermore the downward corrections to growth estimates - in particular for exports - are expected to have a negative effect on new hires in industry. Hiring industrial workers is expected to increase by an average of 2.5% this year, instead of 3.5% according to previous estimates, and compared with 4.5% in 2007.