Credit Suisse has lowered Israel's 2014 growth forecast from 3.5% to 3%. The Swiss bank said, "Real GDP growth was probably flat in April - as in March - according to the central bank’s real GDP growth proxy, but could have improved somewhat in May- June as suggested by various leading indicators. However, we suspect that the downside surprise in household spending in the first quarter could reflect a stronger structural weakness in the economy than we had assumed so far leading us to revise lower our full-year household spending growth forecast to 2.2% (from 2.5% previously)."
Credit Suisse added, "Meanwhile, we retain our 4% exports growth forecast for 2014, reflecting our projection for a recovery in demand from the US and the euro zone in the second half. We also note that the softer-than-expected domestic demand is posing further downside risks even to our revised projection for full-year real GDP growth in 2014."
In the housing market, Credit Suisse sees house price rises moderating. "The Housing price Index (HPI) was up 7.1% year-on-year in February-March from 6.9% year-on-year in January-February, but remained close to the lower end of its last 12-month range (6.9-10.2%). We expect housing price inflation to moderate in the near term, on the back of a temporary decline in demand as potential buyers remain on the sidelines in anticipation of the government’s measures aimed at pushing prices lower. The latest and most promising - development on that front is the Ministry of Finance’s draft law (published on 11 May), which stipulates an exemption for first-time buyers from the (18%) VAT rate.
In the foreign exchange market, Credit Suisse sees a slight depreciation of the shekel. "We retain our end-year NIS 3.55/$ forecasts for 2014 and for 2015. Although we expect the balance of payments dynamics to remain largely supportive of the shekel, we think that building expectations for the normalization of the US monetary policy and the recent growth weakness in the Israeli economy will push the dollar shekel rate higher later in the year.
Published by Globes [online], Israel business news - www.globes-online.com - on June 15, 2014
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