Overall economic activity picked up in the fourth quarter of 2006 recovering from the moderate growth in the third quarter resulting from repercussions of the second war in the Lebanon, the Bank of Israel's quarterly report of companies revealed Wednesday. Using qualitative measures of about 500 companies and businesses from different industries participating in the survey, the central bank said that total economic activity "accelerated" following the more modest rise in the preceding quarter, which was overshadowed by the hostilities in the North. "Most industries saw a return to levels of activity from before the hostilities," the report said. "The hotel industry (particularly in the Haifa and northern districts) not only rebounded but reported a rise in activity on the previous quarter." Still, on a year-over-year comparison, the hotel industry suffered from a fall in activity reflecting the relatively low number of bed nights of foreign tourists and Israelis as a result of the fighting. "Hotels continued to see a drop in activity (in comparison to the parallel quarter last year) in the Haifa and the North and in the Jerusalem region, while the Tel Aviv and central region reported a rise in activity, and the South remained stable," the central bank said. Companies in the hotel industry expected the drop in orders to continue into the next quarter. Sector by sector analysis of the central bank's report showed a rise in economic activity in the manufacturing, communications, construction, trade and service industries. The bank further reported that expectations among companies were for the shekel to depreciate over the next 12 months to NIS 4.43/$1, compared with the outlook of NIS 4.56 three months ago. The participating companies forecast a level of NIS 4.30 to the dollar by the end of the first quarter of 2007. Meanwhile, the companies' average forecast for inflation for the quarter fell sharply to 2 percent from 2.5% in the previous quarter. The proportion of companies expecting that inflation in the next 12 months would exceed the government's upper limit of 3% stood at 8% down from the 15% who expected this in the previous quarter.