The Bank of Israel said today that 2009 economic growth is now forecast to be only 1.5%. This is the central bank's third reduction of its growth forecast in recent months, including its previous reduction to 2.7%. "Globes" reported earlier this week that the Bank of Israel would likely cut its growth forecast.
The new growth forecast is due to sharp cuts in growth forecasts for developed countries by the IMF and OECD. Earlier this month, the IMF published a grim outlook. It was followed by the OECD last week, which cut growth forecasts for member states by up to one percentage point, in other words, an economic contraction in many cases. According to the latest IMF and OECD projections, the US economy will shrink by 0.7-0.9% in 2009, the Eurozone economy will shrink by 0.5%, and the UK economy will shrink by 1.3%.
Ministry of Finance figures indicate that 45% of Israel's GDP is exports, half of which goes to the EU and the US. This means that a severe slump in export demand will greatly affect Israel's growth rate.
1.5% GDP growth is tantamount to a recession on the basis of two key macroeconomic figures: GDP per capita and real GDP growth. Given Israel's population growth rate of 1.7% a year, 1.5% GDP growth means a decline in GDP per capita. Since inflation in 2009 is projected to exceed 1.5%, 1.5% GDP growth means a decline in real GDP growth.
Published by Globes [online], Israel business news - www.globes-online.com - on November 20, 2008
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