Businesses expect continued growth

Bank of Israel quarterly survey indicates positive outlook for Q1.

Despite growing fears of a slowdown in the global economy following the US subprime-mortgage crisis, local businesses are positive about continued expansion of economic activity in the first quarter of 2008, the Bank of Israel said Tuesday. "In the last quarter of 2007, economic activity expanded mainly as a result of an increase in both exports and activity in the local market," the central bank reported in its quarterly companies' and business survey. "Businesses expect the trend to continue in the first quarter of this year, but at a slower pace than in the previous quarter." Using qualitative measures of more than 560 companies and businesses participating in the quarterly report, the central bank said all sectors in the economy were expected to grow during the first quarter of this year except the construction industry, due to a shortage of professional and skilled staff as well as financing difficulties. The report showed productivity growth within the industrial sector, mainly as a result of an increase in exports sales and a more modest rise in domestic sales. Increased activity and a rise in exports in this sector was carried by the advanced, or hi-tech, and mixed-industry companies, and to a smaller extent by companies in the traditional industry. Other sectors that stood out in the survey were the hotels and tourism companies, which said there had been a sharp rise in activity during the last quarter of 2007 boosted by renewed confidence in foreign travelers and an increase in overnights, while hotel stays by Israeli visitors stagnated. On the back of a continued increase in reservations for the next quarter reported throughout the sector, hotel and tourism companies were confident about the continuation of this trend. The central bank further reported that expectations among companies were that the shekel would depreciate over the next 12 months to NIS 4.18 against the dollar, improving from the outlook of NIS 4.31 three months ago. The participating companies forecast a level of NIS 4.03 to the dollar by the end of the first quarter of 2008. At the time of the survey, the shekel-dollar exchange rate stood at NIS 3.97. The companies' average provision for inflation for the the next 12 months rose to 2.8 percent from 2.7% in the previous quarter. The majority of participants (72%) expect that inflation in 2008 will remain within the government's price target-range of between 1% and 3%, similar to the previous survey.