Investment house UBS research analysts have cut their 2009 GDP growth forecasts for Israel to 2.2% from 3.1%.
A day after cutting global growth forecasts, and saying the world economy is slipping into recession, UBS says that Israel's close economic integration with both the US and Europe will sharply cut export growth. Analysts Darren Shaw and Roni Biron, and associate analyst Rami Myerson, also expect that a driver of economic growth in recent years domestic demand will fall victim to unemployment, which they except to rise following several years of decline.
The analysts do note that the Israeli government is actually in a good position to increase public spending, following years of low budget deficits. Shaw and Biron expect that in 2009 the budget deficit will rise to as high as 2-3% of GDP, which they see as a "much appreciated stimulus to economic activity".
Lower expected GDP growth will also lead, in UBS's view, to the end of the current Bank of Israel interest rate increase cycle. The current 4.25% is expected to be the peak, and UBS sees rates being cut possibly already in 2008, and see a "more substantial cut over the course of 2009".
The analysts also expect the rate of inflation to remain higher than the targeted 1-3% until the middle of 2009, and to possibly rise to an annual rate of 6% in coming months.
Compared with other countries in the EMEA (Europe, Middle East, and Asia) region, UBS feels Israel is one of the "least vulnerable", as it has a solid balance of payments position.
In the fertilizers and agrochemicals sector, UBS warns that lower grain prices and slower global growth will weigh on returns, and note the increased risk in the field. However, they maintain their "Buy" rating on two Israeli firms, although they cut the target price Israel Chemicals Ltd. (TASE: ICL) to NIS 60 from NIS 83, and Makhteshim Agan Industries Ltd. (TASE: MAIN) to NIS 30 from NIS 39.
UBS expects Israel's banks to suffer more than other companies from the economic slowdown. The analysts say, "We now forecast zero loan growth in 2009 (previously 2-3%)". The analysts do not change their recommendations on Israeli banks "Buy" for Bank Leumi (TASE: LUMI), and "Neutral" for Bank Hapoalim (LSE: BKHD; TASE: POLI), Israel Discount Bank (TASE: DSCT), and Mizrahi Tefahot Bank (TASE:MZTF). However, they lower price targets to NIS 15 from NIS 16 for Leumi, to NIS 5.10 from NIS 5.50 for Discount, and to NIS 22 from NIS 23 for Mizrahi.
Published by Globes [online], Israel business news - www.globes-online.com - on October 7, 2008
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