BoI raises GDP growth forecast to 5.2%

Fixed investment, exports provide encouraging signs that local economy is on track.

Money 311 (photo credit: Bloomberg)
Money 311
(photo credit: Bloomberg)
The Bank of Israel on Wednesday raised its forecast for gross domestic product in 2011 to 5.2 percent from 4.5%. It also said it expected a lower unemployment rate of 5.8%, which would be an all-time low.
The central bank’s growth forecast is lower than the OECD prediction of 5.4%, announced earlier this week.
The Bank of Israel also predicts 4.2% GDP growth in 2012 and no change in the unemployment rate.
“The rapid growth of GDP and use of resources in the first quarter, and in particular the surge in exports and fixed investment, resulted in an upward revision of most items,” the central bank said in a statement.
“Despite the rapid increase in exports, the surplus in the current account of the balance of payments is expected to be significantly smaller than in the previous forecast because of a faster increase in imports and a more severe deterioration in the terms of trade. The quarterly rates of growth are expected to slow a little in the course of the year as the economy converges to a fullemployment situation.”
Regarding 2012, the Bank of Israel said, “Exports are expected to continue increasing, at a rate slightly below that of world trade, due to both external forces – the deterioration in the terms of trade – and the level of the real exchange rate. The steep increase in capital stock – the result of the expansion of investment in 2011 – and the continued rise in the rate of participation in the labor force to 58% are expected to contribute to a growth rate in 2012 in excess of the potential rate, despite the fact that the economy is in a full-employment environment.”
The central bank predicted 4% growth in private consumption in both 2011 and 2012, export growth (excluding diamonds) of 6.3% this year and 6.2% next year, import growth (excluding defense and diamonds) of 11.5% and 6.7%, respectively, and investment in fixed assets growth of 15.4% and 6.8%.
The Bank of Israel warned that the forecast assumes stability in Israel’s geopolitical situation and continued recovery in the global economy without serious fiscal or financial crises developing. In light of inherent risks in these fields, the forecast tends to be on the downside.