Bank of Israel lowered 2009 growth forecast

The BoI cut its 2008 growth forecast from 4.7% to 4.3%, and reduced almost in half the Bank's estimate growth for 2009 from 2.7% to only 1.5%
 
The Bank of Israel (BoI) updated last week its economic growth forecasts for the second time in a month. The BoI cut its 2008 growth forecast from 4.7% to 4.3%, and reduced almost in half the Bank's estimate growth for 2009 from 2.7% to only 1.5%.
 
The new BoI growth forecast is mainly due to sharp cuts in the 2009 growth forecasts for developed countries indicated by the IMF and OECD.
 
The IMF published earlier this month a grim outlook for the world economic outlook. It was followed by the OECD, which cut growth forecasts for member states by up to one percentage point. According to the latest IMF and OECD projections, the US economy will shrink by 0.7-0.9% in 2009, the Eurozone economy will shrink by 0.5%.
 
The BoI predicts that in 2009 unemployment will reach 7%, up from 6.1% this year. In 2007 the jobless rate hit 7.3%.
 
The bank predicts that unemployment may even rise above 7% by the end of next year. The BoI also predicts lower growth in several economic parameters for 2009: exports, imports, industrial production, private consumption and consumer spending.
 
In addition, the BoI predicts that budget deficit will rise from zero in 2007 to 1.6% this year and 2.7% next year.
 
However, the Bank of Israel expects Israeli economic growth to be higher than in other developed nations.
 
Only two days ago Finance Ministry director general Yarom Ariav estimated 2009 economic growth at about 2%. The Israeli economy grew 5.3% in 2007.
 
Analysts said last week that Israel had so far escaped much of the financial wobbles thatstirred world markets, but the emerging market economy would not be immune in the long run. Israel's ability to ward off global financial ripples depends on its strategy to sustain growth and preserve financial stability, they said, noting that the year 2009 would be especially challenging. Israel had a balanced budget in 2007 and the central bank expects a mild budget deficit in 2008, which accounts for 1.6 percent of the gross domestic product (GDP). The debt to GDP ratio has dropped from well over 100 percent to around 80 percent, thanks to prudent fiscal policies since 2003.
 
In addition, analysts expected the balance of payments, which has been in surplus, to offset pressure from the forecast budget deficit. The balance of payments surplus was 6 percent of GDP in 2006 and 3 percent in 2007. Israel's currency shekel has been relatively solid against major currencies over the past two years, analysts said. To avoid a currency collapse seen in other countries, Israel's central bank has been building up its foreign currency reserves by buying 100 million U.S. dollars a day since March.