Israel gets favorable economic forecast

Goldman Sachs optimistic on Israel

Ahmet Akarli’s growth forecast is higher than the Bank of Israel’s and the Finance Ministry’s.

Adi Ben-Israel, GLOBES,  4 Jul 10 12:56
Goldman Sachs expects rapid economic growth and low inflation for Israel in 2011, even as Israeli economic leaders are deliberating whether to cut their growth forecasts for the next two years, under the impact of the debt crisis in Europe.

Goldman Sachs analyst Ahmet Akarli predicts 3.5% real GDP growth for Israel in 2010 and 4.3% growth in 2011. The Bank of Israel currently predicts 4% growth next year, and the Ministry of Finance predicts less than 4% growth.

Akarli forecasts 2.4% inflation for the full years of 2010 and 2011.

Akarli believes that the shekel will continue to weaken against the dollar in the short term, but that the shekel will then begin to appreciate. He predicts that the shekel-dollar exchange rate will reach NIS 3.95/$ in three months, NIS 3.84/$ in six months, and NIS 3.60/$ in twelve months. “Widening demand differentials, a strong external position, and monetary tightening should drive the shekel stronger,” he says.

Akarli believes that the Bank of Israel will raise the interest rate to around 3% by the end of 2010, as it removes excess easing in response to the stabilization in the global economy and Israel’s snapping out of recession.  

In its global economic outlook for the third quarter, Goldman Sachs says that while the first half of 2010 was “exciting”, the second half will be “risky”. During the first half, the investment bank raised its global growth forecast from 4.4% to 4.8%, well above the market consensus, which rose from 3.8% to 4.6% over the same period.

Goldman Sach says, “Much as the first half of the year proved stronger than expected, however, Europe’s sovereign debt crisis and an associated increase in global financial stress have increased the downside risks for the second half.” It sees two dangers: budget cuts reducing growth, and stress felt by European banks may lead them to tighten credit conditions.

“Our own view is that the some of these fears are exaggerated, but the situation is fragile and the risks to growth are higher than at any time since the recovery began. The consensus expects global growth to slow quite sharply, from a 5½% quarter-on-quarter annualized pace in first half to a 3½-4% pace in second half, and the price behavior across a range of asset markets suggests that financial markets are pricing in an even bigger decline. We are more optimistic but we still expect global growth to slow materially to a 4%-4½% pace in the second half.”

Published by Globes [online], Israel business news – www.globes-online.com – on July 4, 2010

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