Investment houses are increasingly cutting their growth forecast for the Israeli economy in 2009 on expectations conditions of global trade will worsen. "We are now expecting the Israeli economy to grow by only 1.7 percent in 2009, after an average growth rate of 5.1% over the past five years," Shlomo Maoz, chief economist at Excellence Nessuah, said Tuesday. "The US, Europe and Japan are entering a global recession, while growth in emerging-market countries is expected to slow down in what marks one of the most difficult times faced by the global economy in the past 80 years. Israel, a country that is dependent on global trade, will be especially hit, like other countries that are export-dependent." The possibility of expanding the government's budget to stem the downturn in economic activity, as is done in other global economies, was not an option in Israel, he said, because the upcoming elections would put a halt on government activity for the next six months. Maoz expects the economy to grow by 3.8% for 2008, far below the recent 4.5% forecast by the Central Bureau of Statistics. Excellence Nessuah expects the rate of unemployment in Israel to soar to 8.3% in 2009, compared with the current 6.3%, as a result of lower exports of goods and services, including a 20% drop in incoming tourism and a slowdown in the growth rate of investments. Private consumption is expected to grow by 1.7% next year, compared with an expected 3.8% in 2008 and an average growth rate of 4.8% over the past five years. In a more pessimistic outlook, UBS investment bank last week more than halved its 2009 growth forecast for Israel, from 2.2% to 1%. While UBS economists believe in the strong fundamentals of the local economy, the investment firm sees the deepening downturn of the economies in the US and Europe, and the decline in commodity prices, impacting Israel more strongly. "In light of the poor growth outlook for the US and the EU, we now expect Israeli growth to slow from 4.1% in 2008 to just 1% in 2009, followed by a pick-up to 2.7% in 2010. We regard these forecasts as conservative; in fact, we are markedly below the latest available consensus of 3.3% for 2009," UBS said in a recent report. "Israel will not be able to avoid a substantial slowdown in growth, but we are confident that its sound fundamentals will enable it to avoid serious financial-market turbulence and potentially deep disruptions to economic activity that we are concerned about elsewhere in the EMEA [Europe, the Middle East and Africa] region." UBS has slightly lowered its expectations for Israeli exports and household consumption. The bank forecasts a substantial decline in US fixed investment in 2009, not least in business investment and equipment and software, which are two components that tend to be closely correlated with Israeli exports. Furthermore, UBS also expects local domestic consumption to fall as confidence drops. UBS noted that Israel was different from many other countries in EMEA in terms of its strength of its balance of payments. "Even though we expect Israel's multiyear current-account surplus to be practically wiped out this year and to slip into moderate deficit in 2009-10, Israel's external balance will still look solid relative to the unsustainable external deficits elsewhere in the region," the UBS report said. "This is a source of great resilience at a time when sharply reduced risk appetite and vanishing liquidity hugely complicate external financing, and implies that Israel should emerge from the current slump quicker and in better shape than many other countries." According to Michael Sarel, head of the economics and research division at Harel Insurance and Finance, the continued downturn in tax revenues over the past couple of months, especially in October, were a sign of a slowdown in local economic activity, which significantly raises the outlook for a widening government budget deficit in 2009. "The government faces a difficult situation," he said Tuesday. "In a time of an economic slowdown the government will likely have to increase expenditure and lower taxes in order to help boost the economy. However, on the back of a widening deficit outlook, such an expansionary policy is bound to be dangerous and lead to a fiscal crisis, which in turn will only accelerate an economic slowdown. Therefore the government must implement a fiercer monetary policy through harsher interest-rate cuts and continue foreign-currency purchases rather than expand fiscal policy, in particular in view of reduced inflationary pressures."