HSBC has raised its 2013 growth forecast for Israel to 2.8% from 2.6%. HSBC economist Dr. Murat Ulgen headlines the section on Israel (within the global report "The Great Rotation") "Sharper signs of slowdown," and notes, "Until recently, the Israeli economy has been fairly resilient to slowing global growth. GDP growth remained fairly steady from mid-2011 to mid-2012, averaging 3.2%. Nevertheless, growth slowed to 2.9% in Q3 2012, and leading economic indicators suggest that this trend will spill over into 2013."
He added, "We expect growth to moderate to 2.8% in 2013 before rebounding to 3.4% in 2014, in tandem with improving global demand."
HSBC said, "Another factor which should reduce domestic demand will be the likely fiscal consolidation following elections on 22 January. Recently, the fiscal posture has been expansionary, with the deficit expected to reach 4.2% GDP in 2012. Significant fiscal adjustments will be necessary to reach the 2013 deficit target of 3% GDP.
In addition, a contraction in residential investment will reduce economic activity in 2013, as residential starts have declined sharply. Weak domestic demand and slack in the labor force should keep inflation low. In addition, the shekel is likely to appreciate on the back of an improvement in the current account balance as offshore natural gas production will commence in Q2 2013, reducing Israel’s imported energy bill."
HSBC said, "We expect natural gas production to contribute 0.6% to GDP by 2014 but only 0.2% to tax revenues (reaching 1% by 2020)."
HSBC also expects more interest rate cuts, "The current MPC under Governor Fischer will likely maintain its dovish, proactive stance, and we expect it to cut rates once more in early 2013. Geopolitical risks remain but in the past such risks have generally had little lasting economic impact."
Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2012
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