The Bank of Israel Research Department released a staff forecast of macroeconomic developments in 2012, cutting its 2012 growth forecast to 2.8% from 3.2%, and predicting that its interest rate will be 2.25% at the end of next year, down from the current 2.75%.
The Research Department forecasts:
•The rate of inflation expected over the coming four quarters is 2.1%, near the mid-point of the inflation target range.
•The Bank of Israel interest rate in one year's time is expected to be 2.25%.
•The economy (GDP) is expected to grow 2.8% in 2012.
The GDP growth rate in 2011 is estimated at 4.8%, and the GDP growth rate in 2012 is forecast to be 2.8%. The growth forecast for 2012 was revised downward relative to the forecast published in September of 3.2%. The expected slowdown in the rate of GDP growth in 2012, relative to that of 2011, stems from an expected slowdown in the growth of all components of demand. This is primarily due to the deterioration in global conditions, specifically the debt crises in Europe and their effects. The unemployment rate is expected to increase from 5.6% in the third quarter of 2011 to 6.4% in the fourth quarter of 2012, with a moderate increase in the rate of participation in the workforce, to 57.6%.
The bank expects private consumption to fall from 4.7% in 2011 to 1.4% in 2012. The expected impact on exports of the drop in demand due to worldwide developments, especially in Europe, is reflected in the low expected growth of exports in 2012 (only 1.2%), as well as the downward revision in the estimate for 2011 (2.1% export growth, compared with 3.9% in the September forecast). The latter update is due to the sharp decline in exports in the third quarter of 2011, according to National Accounts data published in November.
The slowdown in the rate of growth of demand in 2012, compared to 2011, is expected to be reflected as well in a marked slowdown of imports, which are expected to increase by only 1.4% in 2012, compared with 8.8% in 2011.
