HSBC raises 2013 Israel growth forecast to 3.3%

Were it not for the start of natural gas production, HSBC says that Israel's GDP growth would be only 2.6% in 2013.

HSBC Global Research has raised its 2013 growth forecast for Israel from 2.8% to 3.3%. The optimistic outlook comes despite the slowing of GDP growth to an annualized 2.4% in the fourth quarter of 2012 from 2.7% in the preceding quarter, due to the start of natural gas production. Were it not for the natural gas, GDP growth in 2013 would be only 2.6%, HSBC says.

Analyst Dr. Murat Ulgen says, "Natural gas will be of great importance this year. Production from huge off-shore natural gas reserves will commence in early second quarter of 2013, adding nearly 1% to GDP for the year as Israel’s energy bill will be sharply reduced."

On the political side, Ulgen says, "The major challenge facing policy makers in coming months will be reining in the burgeoning fiscal deficit which reached 4.2% of GDP in 2012. Expenditure cuts of nearly 2.5% of GDP will be required to observe the expenditure cap for 2014. The exclusion of the ultra-orthodox parties from the coalition will facilitate fiscal cuts in social spending and allowances, enhancing the probability of restoring fiscal credibility." He cautions, however, "Bank of Israel Governor Fischer will end his term on 30 June. Fischer's proactive policy will be difficult to match, regardless of his replacement."

On the macro side, Ulgen cites a Bank of Israel report that attributes most of the growth deceleration in the fourth quarter of last year to nine days of hostilities in November (Operation Pillar of Defense in Gaza). Looking ahead, he says that indicators in the first quarter have been mixed so far, but consumer and business surveys have been modestly more optimistic, with industry reporting stronger export orders. "Stronger global growth and trade should spillover to Israel exports which make up 40% of GDP. Household consumption appears to have accelerated in the first quarter on the back of low unemployment and loose monetary policy."

Published by Globes [online], Israel business news - www.globes-online.com - on March 27, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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