Deutsche Bank says, “We continue to view Israel as one of the most robust economies in Europe, Middle East, and Africa region (EMEA). The growth picture is solid, the debt burden has declined, and the currency is competitive.”
The bank adds, “The external picture is particularly solid with Israel the only non-oil EMEA country projected to record a current account surplus in 2007 and the trade deficit has actually narrowed in spite of the deteriorating terms of trade position. Even stripping out the large transfers balance, which mostly comprises receipts from the US, the current account remains in surplus.
“An improved fiscal stance has meant the public debt burden has dropped from more than 100% of GDP in the mid-1990s to 86% at end 2006. Although the fiscal implications of last summer’s hostilities with Lebanon could push the debt burden up slightly this year, the general trend is downward.
“The shekel’s strength until mid-May meant inflation has been below the Bank of Israel’s 1-3% target range for nine months now. Although the recent shekel weakness, combined with more helpful base effects will serve to push CPI back within target by Q4 we see rate hikes as still some way off. Not only is inflation still significantly below target at -0.7% year-on-year (June), but the Bank of Israel only ended its easing cycle in May. We continue to see rates on hold at 3.5% until 2008.
“The country’s balance sheet has improved during recent years with Israel now a net external creditor on debt securities (24% GDP) although still a net debtor on equities (34% GDP). This rising stock of equity assets should also help to tip the income balance into positive territory during the coming years. We maintain our year end forecast of NIS 4.10/$ and reiterate our view that the shekel looks cheap compared with fair value. With no change in macro fundamentals to trigger the turnaround in the shekel’s fortunes a possible explanation is that the currency is beginning to react to the increasingly wide policy rate differential with both the US and Euroland.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 18, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007