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Israel Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

Political risks remain elevated, despite a reduced likelihood of an attack on Iran and Syria. In particular, spillover effects from the civil war in neighbouring Syria remain high, and investor confidence may be tempered as a result. We project real GDP growth in Israel to come in at 3.2% in 2014 and 3.6% in 2015, from growth of 3.3% in 2013. the economy will remain in a soft patch this year, with fiscal austerity hitting consumer demand and export growth only modestly accelerating.


Major Forecast Changes

We believe that the Israeli shekel will gradually appreciate in 2015, a result of significant inflows of foreign exchange in the form of investment and payments by international gas companies, improvements in Israel's trade position and a reversal of the central bank's dovish monetary policy. We project the Israeli shekel to average ILS3.5000/USD and ILS3.4000/USD in 2014 and 2015, respectively, from previous forecasts of ILS3.5400/USD this year and ILS3.600/USD the next.

Table Of Contents

Israel Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics . 8
Failure of Talks Intensifies Diplomatic Isolation
Israel will feel increasingly isolated on the international stage following the failure of peace talks with the Palestinians. While not
irreparably damaged, relations with the United States will remain strained over the coming years.
Table: Political Overview..8
Long-Term Political Outlook.. 10
Will Long-Lasting Peace Be Achieved?
Over the next decade, Israel will continue to face external security threats from militant groups Hamas and Iran-backed Hizbullah.
Downside risks to stability stem from the potential for renewed conflict with Hizbullah across Israel's northern border, although any
peace settlement with the Palestinians would pose upside risks.
Chapter 2: Economic Outlook 15
SWOT Analysis 15
BMI Economic Risk Ratings... 15
Economic Activity... 16
Growth To Improve In 2015
We forecast real GDP growth in Israel of 3.2% and 3.6% in 2014 and 2015, respectively, from 3.3% in 2013. Slow growth in private
consumption will depress economic expansion this year. However, a moderation of austerity policies and increasing exports underpin
our relatively bullish medium-term outlook for the economy.
Table: Economic Activity..16
Monetary Policy... 17
Monetary Policy To Reverse In 2015
The Bank of Israel will cut key interest rates by 25 basis points to 0.50% by the end of 2014 on the back of low inflation and sluggish
economic growth. A reversal of these trends will lead the central bank to abandon its dovish monetary policy stance in 2015, and we
forecast interest rates to rise to 0.75% by the end of the year.
Table: Monetary Policy18
Exchange Rate Policy 19
ILS: Gradual Appreciation In 2015
We believe that the Israeli shekel will gradually appreciate in 2015, a result of significant inflows of foreign exchange in the form
of investment and payments by international gas companies, improvements in Israel's trade position and a reversal of the central
bank's dovish monetary policy. We project the Israeli shekel to average ILS3.5000/USD and ILS3.4000/USD in 2014 and 2015,
respectively.
Table: Currency Forecast..19
Table : Excha nge Rate 20
Banking Sector ... 21
Limited Profitability Amidst Stricter Regulation
A combination of low interest rates, stricter regulations and slack growth in the economy will ensure that profitability in the Israeli
banking sector remains low in 2014. A robust regulatory framework will ensure that risks to stability in the segment will be minimal over
the coming quarters.
Chapter 3: 10-Year Forecast... 23
The Israeli Economy To 2023. 23
Long-Term Outlook Slow But Steady
We are forecasting steady, if unspectacular, growth for the increasingly developed Israeli economy over the long term. As ever, political
risks pose downside risks to our GDP growth forecasts.
Table: Long-Term Macroeconomic Forecasts23
Chapter 4: Business Environment. 25
SWOT Analysis 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook. 26
Institutions... 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS26
TABLE: BMI LEGAL FRAMEWORK RATING.27
Infrastructure... 28
Market Orientation... 29
TABLE: LABOUR FORCE QUALITY..29
TABLE: MENA - ANNUAL FDI INFLOWS..30
TABLE: TRADE AND INVESTMENT RATINGS.31
Operational Risk.. 32
TABLE: Top Export Destinations, USDmn 32
Chapter 5: Key Sectors.. 33
Defence 33
Table: Defence Expenditure...34
Freight Transport. 37
Table : Air Freight 40
Table : Rail Freight ..40
Table : Maritime Freight .40
Other Key Sectors... 41
Table: Oil and Gas Sector Key Indicators.41
Table : Pharmaceuticals Sector Key Indicators 41
Table: Infrastructure Sector Key Indicators...41
Table: Telecoms Sector Key Indicators42
Table: Food and Drink Sector Key Indicators.42
Table: Autos Sector Key Indicators...42
Chapter 6: BMI Global Assumptions. 43
Global Outlook. 43
Emerging Market Deceleration43
Table: Global Assumptions.43
Table : Developed States , Real GDP Growt H, %...44
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 44
Table : Emergi ng Markets , Real GDP Growth , %..45

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