Deutsche Bank predicts 4.1% growth in 2006

Analyst Khatija Paruk from the economic department of the Deutsche Bank released last week a positive survey of the prospects for the Israeli economy in 2006.
 
Paruk noted that :"Looking ahead to 2006, we expect some moderation in GDP growth to 4.1% year-on-year. Household spending should continue to be supported by tax cuts and declining unemployment, but expected higher interest rates are likely to offset this somewhat".
The bank also expects inflation to rise above 3% in early 2006, while the Shekel will strengthen against the dollar by about 7% during the year, to NIS 4.30. (from the current 4.58/ 4.62.)
 
Most of the Shekel's appreciation will happen once the uncertainnty created by the elections is dispelled. . The bank's analysts seem to have strong views on Israeli politics arguing that the biggest threat to the government's fiscal policy is the success of the Labor party in the elections.
 
They also wrote however that they expect fiscal policy to remain unchanged under "Kadima", the new Ariel Sharon's party. The bank analyst noted that Israel succeeded to maintain robust economic growth despite the high oil prices and the relative weakness of the Shekel.
 
The bank predicted that budget deficit should run at 2.5% of GDP this year because the government will bring spending forward from 2006 to this year. For the year 2006, however, the bank predicted a deficit of 3%, which is within the government's target.