Bank of America Merrill Lynch has raised its growth forecast for the Israel economy in 2010 from 2.9% to 3.5%. "The recent data releases confirm a firm recovery path," the report says.

"Overall, the statistics office estimate 0.5% GDP growth in 2009 vs flat/negative readings by various forecasters. In light of a generally positive global picture, we expect exports, especially the high-tech sector, to be a strong driver of the 2010 growth in Israel," analyst Mai Dohan writes.

Dohan predicts a Bank of Israel interest rate of 3% by the end of the year, and says that, because of the upward revision in the GDP forecast and expected high inflation in the first quarter, interest rate hikes will take place earlier than previously projected, with the central bank now expected to raise rates by 25 basis points per month in the first quarter.

On inflation, the report says,"On the back of the improved growth outlook, we now see inflation averaging 3.6% in 2010, with year-end inflation at 2.7%. In the near-term, CPI inflation will likely spike to above 4% due to unfavourable base effects and domestic price hikes."

Published by Globes [online], Israel business news - www.globes-online.com - on January 10, 2010

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