The Bank of Israel now forecasts negative growth of -0.2% in 2009. Today's revision is the third time in the past two months that the Bank of Israel has pushed down its growth forecast. Last month it predicted growth of 1.5% in 2009, while in November it predicted that growth would be between 1.5-2.7%.
This latest negative growth forecast may also affect Israel's interest rate. The Bank of Israel's monetary committee began its monthly interest rate discussion today ahead of tomorrow's interest rate decision for February by Bank of Israel Governor Stanley Fischer.
The announcement about negative growth indicates that there is a reasonable possibility that rather than the expected cut of 50 basis points tomorrow, the cut will now be a more significant 75 basis points, and possibly even a full 1%, though the likelihood of this latter figure is low. Last month Fischer lowered the interest rate by 75 basis points to 1.75%.
The Bank of Israel's today said, "Most of the data is negative. There has been a substantial worsening in economic activity and a fall in growth and global trade forecasts, the fall in economic activity in the fourth quarter in Israel and especially the sharp fall in exports and industrial production, Operation Cast Lead had substantial fiscal costs and may have a negative influence on export services and tourism."
On the other hand, the Bank of Israel's economists observed that these negative influences are partly offset by the improvement in external trade conditions, mainly following the fall in the price of oil. In addition, the planned increase in public expenditure is expected to positively influence economic activity.
Published by Globes [online], Israel business news - www.globes-online.com - on January 25, 2009
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