Appreciation of the Shekel against the Dollar will cut Israel's growth by 1% in 2005

Mr. Shraga Brosh chairman of the Israel Export and International Cooperation Institute said last week that "The sharp shekel appreciation against the dollar will reduce growth over the next two years"
 
Mr. Brosh predicted that Israel's growth rate in 2005 might fall to 3%, compared with 4% in 2004.
 
According to Brosh, lower exports will cause half the decline :"If the shekel continues to appreciate against the dollar, Israel's growth might be seriously affected. A further appreciation, combined with expected lower growth in international trade, will damage further export growth, costing the economy some NIS 2.5 billion".
 
In a press release Mr. Brosh emphasized that should the shekel appreciate the Bank of Israel would again have to cut the interest rate, despite the shrinking gap between the Israeli and US interest rates. A weak dollar will, according to Brosh also hurt Israeli export growth to North and South America, and to Asia, which conduct foreign trade with Israel in Dollars, and which together account for around 70% of Israeli exports in 2004.
 
Brosh explained that according to his understanding the two parameters that affect Israeli exports would be adversely affected in the coming year:
The expected slowing down of the growth in international trade from 10% this year to 7.5% in 2005.
 
The second is the erosion of the Shekel against the basket of currencies from NIS 5.20 per unit in the first quarter of 2003 to NIS 5.02 per unit today. The shekel has appreciated 10% against the dollar in this period.
 
Brosh added that export has been the main growth factor in the economy. In 2004 the growth in export was largely influenced by the fast growth in international trade as well as by the fast devaluation of the shekel against the Dollar and the basket of currencies.