Businesses optimistic about growth in Q1

Trading companies reported a moderation in the rate of increase of sales in the fourth quarter, compared with the increases in the previous quarters.

Business activity is expected to continue to expand in the first quarter of the year following strong activity in the fourth quarter, driven by domestic and export sales, according to the Bank of Israel’s companies’- survey for the last quarter of 2010.
“In all industries, expectations are for continued expansion in activity in the next quarter, including the manufacturing sector, which in the previous survey companies had reported expectations of a slowdown,” the central bank stated in its companies’ survey published on Tuesday. “For the first time since the start of the recovery from the global crisis, services exports increased.”
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Reports from companies participating in the survey show that economic activity continued to expand in the fourth quarter, and that the increase is expected to continue in the first quarter of 2011, the central bank added. The findings of the companies survey are based on the responses of 602 companies in various sectors of the economy.
Construction companies reported increased activity in the quarter, most notably in the large companies. At the same time, though, companies reported a decline in the number of employees as a result of an increased shortage of skilled workers. Furthermore, the companies said that land prices were restricting the expansion of activity.
“Demand constraints are not serious, however; against the background of buoyant demand and the supply-side constraints, construction companies reported a rise in output prices,” the central bank said.
Manufacturing companies said that the expansion of activity continued in the fourth quarter, with both domestic and export sales increasing. Companies also reported a rise in the number of their employees, and a marked and continued increase in their utilization of machinery and equipment. The expansion was reflected in a significant increase in the net balance – the difference between the proportion of companies reporting an increase in activity and those reporting a decrease.
“The significant increase in activity occurred in contrast to companies’ expectations in the previous quarter, when they predicted a slowdown in the fourth quarter,” the central bank said. “They reported increased orders from the domestic market and from abroad, reducing the probability of a slowdown in this industry in the first quarter of 2011.”
Trading companies reported a moderation in the rate of increase of sales in the fourth quarter, compared with the increases in the previous quarters. The number of employees did not increase, similar to the situation in the previous quarters. Companies said they expected further increases in sales in the first quarter of the year.
Business services companies reported a significant increase in activity, due in part to growth in domestic sales, as in the previous quarters, For the first time since the start of the recovery from the global crisis, higher exports also played a role in the increase. The number of employees increased, as did domestic and export orders for the next quarter.
Most hotels reported a rise in activity in the fourth quarter, similar to the continued rise since the beginning of 2010.
The increase derived mainly from the increase in foreign tourists’ hotel bed nights, but bed nights of Israelis also rose.
In transport and communications, activity continued to expand in the fourth quarter, based on sales of services to nonresidents. Sales to Israelis did not change, and in communications they actually declined a little. This lowered the net balance of total activity.
The more moderate increase was also reflected in companies’ reports of the change in the number of employees. On the other hand, the rate of equipment utilization increased, and expectations are of a further rise in activity in the first quarter.
The respondents expected that the dollar would cost NIS 3.78 on average at the end of 2011. The respondents forecast an average dollar level of NIS 3.69 by the end of the first quarter of this year. The average exchange rate at the time the companies completed the survey questionnaire was NIS 3.57 to the dollar.
Companies’ inflation expectations for the next 12 months to December 2011 averaged 2.65 percent, which is within the upper range of the price stability target of 1% to 3%. The share of companies expecting inflation in the next 12 months to be within the price stability target remained at 80%, the same as in the previous quarter, and the share of companies expecting inflation to be above the upper limit of the target range also remained unchanged, at 16%.