Bank of Israel & UBS cuts 2009 growth forecast

UBS Israel lowered their GDP estimate for the country to 2.2% from 3.1%, due to a likely decline in exports as the world economy slows
 
In a report titled "Storm Clouds Gathering," UBS Israel lowered their GDP estimate for the country to 2.2% from 3.1%, due to a likely decline in exports as the world economy slows. UBS Israel affirmed what they called a "conservative" 2008 growth forecast of 4.1%.
 
"Given Israel's relatively close integration, particularly with the U.S. but also with the EU, we expect export growth to slow down sharply," the analysts said. "Domestic demand, which has grown strongly in recent years, is also likely to lose steam as unemployment is likely to head upwards again, after years of declines."
 
UBS Israel noted that public spending should rise, "Following a balanced budget in 2007, we expect the government to let the deficit rise to (at least) 1.6% of GDP in 2008, as planned”.
 
For 2009, "the provisional budget draft envisages a deficit of just 1% of GDP, but we believe that the deficit will end up being higher, perhaps in the range of 2% to 3% of GDP. The result would be a much appreciated stimulus to economic activity."
 
In line with capital market predictions the Bank of Israel cut last week its 2009 growth forecast to 2.5-2.9% from 3.2%.
 
UBS has also cut its 2009 global growth forecast to 2.2% from 2.8% because of the financial crisis, the severe liquidity shortage, and plummeting stock markets in the US, Asia, and Europe. UBS's criteria set growth of less than 2.5% as an indicator of a recession.