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Israel Business Forecast Report Q4 2014

  • September 2014
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views
Political risks remain elevated despite a Egypt-brokered truce
between Israel and Islamist group Hamas on August 26, which will
result in the end of the Israeli military ‘Operation Protective Edge’
in the Gaza Strip. Moreover, spill over effects from the civil war in
neighbouring Syria remain high.

Major Forecast Changes
We have revised down our 2014 real GDP growth forecast for Israel
to 2.5%, from 3.2% previously due to the recent conflict with Hamas.
We project the economy expanding by 3.6% in 2015 - the result of
low base effects and accelerating export growth.

Table Of Contents

Israel Business Forecast Report Q4 2014
Executive Summary. 5
Core Views..5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Violence To Resurface Despite Truce..8
The ceasefire brokered between Israel and Palestinian delegates on August 26 will result in the end of the Israeli military 'Operation
Protective Edge' in the Gaza Strip.
TABLE: Political Overview..8
Long-Term Political Outlook 9
We do not expect a long-lasting peace agreement between Israel and the Palestinians to be reached over the coming decade. Israel will
also continue to face external security threats from Hizbullah and Iran.
TABLE: Terms Of Ceasefire.9
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity... 14
Growth To Accelerate In 2015.14
We have revised down our forecast for Israel's 2014 real GDP growth due to the recent conflict with Hamas and now project the
economy to expand by 2.5 % this year and 3.6% the next.
TABLE: Economic Activity..14
Fiscal Policy. 15
Gaza War Increasing Budget Strains.15
The 7-week conflict in the Gaza Strip in Q314 will result in a persistently elevated fiscal deficit in Israel, which we forecast to come in at
3.6% and 3.5% of GDP in 2014 and 2015, respectively. The government will hike taxes to make up for increased defence spending next
year.
TABLE: Fiscal Policy16
Monetary Policy... 16
Dovish Monetary Policy To End In 201516
The Bank of Israel will maintain interest rates at 0.25% in Q414 before hiking to 0.75% by the end of 2015, a result of accelerating
domestic growth of the economy, and increasing inflation and rate hikes in the US.
TABLE: Monetary Policy17
Exchange Rate Policy 17
ILS: Losses To Be Reversed...17
Recent losses for the Israeli shekel will reverse in Q414, and we forecast the unit to trade at ILS3.4700/USD at the end of 2014 from
current levels of ILS3.5685/USD.
TABLE: BMI Israel Currency Forecast.18
TABLE: Exchange Rate18
Banking Sector ... 19
Profitability Improving In 201519
Profitability for Israeli commercial banks will improve in H214 and 2015 owing to a gradual amelioration in credit quality. Asset growth
will also accelerate, a result of low base effects and a pickup in lending growth.
Regional Investment Climate 20
MENA FDI: Outperformers And Laggards..20
Political instability in large parts of the Middle East and North Africa will continue to weigh heavily on foreign direct investment inflows to
the region as a whole over the coming years.
Chapter 3: 10-Year Forecast... 25
The Israeli Economy To 2023. 25
Encouraging Growth Prospects Over The Coming Decade..25
We are forecasting steady expansion for the Israeli economy over the coming decade, driven by elevated export and gross fixed capital
formation growth. Political risks will remain significant, resulting in a persistently elevated risk premium for investors.
TABLE: Long-Term Macroeconomic Forecasts25
Chapter 4: Business Environment. 27
SWOT Analysis 27
BMI Business Environment Risk Ratings.. 27
Business Environment Outlook. 28
Institutions... 28
TABLE: BMI BUSINES AND OPERATION RISK RATINGS28
TABLE: BMI LEGAL FRAMEWORK RATING.29
Infrastructure... 30
Market Orientation... 31
TABLE: LABOUR FORCE QUALITY..31
TABLE: MENA - ANUAL FDI INFLOWS..32
TABLE: TRADE AND INVESTMENT RATINGS.33
Operational Risk.. 34
Chapter 5: Key Sectors.. 35
Pharmaceuticals and Health.. 35
TABLE: Pharmaceutical Sales, Historical Data And Forecasts ...36
TABLE: Healthcare Expenditure Trends, Historical Data And Forecasts 37
TABLE: Government Healthcare Expenditure Trends, Historical Data And Forecasts. 37
TABLE: Private Healthcare Expenditure Trends, Historical Data And Forecasts... 37
Real Estate... 38
TABLE: Forecast Office Rents Costs , 2014-2015 (USD/sq m/month ). 40
TABLE: Short -Term Forecast Office Net Yields , 2014-2015 (%).40
TABLE: Long -Term Forecast Office Net Yields , 2011-2018 (%)40
TABLE: Forecast Retail Rental Costs , 2014-2015, (USD/sq m/month )... 40
TABLE: Short -Term Forecast Retail Net Yields , 2014-2015 (%)..40
TABLE: Long -Term Forecast Retail Net Yields , 2011-2018 (%)41
TABLE: Forecast Industrial Rental Costs , 2014-2015 (USD/sq m/month )... 41
TABLE: Short -Term Forecast Industrial Net Yields , 2014-2015 (%).41
TABLE: Forecast Net Yields , 2011-2018 (%)41
Other Key Sectors... 43
TaBLE: Oil and Gas Sector Key Indicators.43
TABLE: Telecoms Sector Key Indicators43
table: Defence and Security Sector Key Indicators...43
TABLE: Infrastructure Sector Key Indicators...44
TABLE: Food and Drink Sector Key Indicators.44
TABLE: Autos Sector Key Indicators...44
TABLE: Freight Key Indicators44
Chapter 6: BMI Global Assumptions. 45
Global Outlook. 45
Eurozone Downgrade On Poor Q214..45
Table: Global Assumptions.45
Table: Developed States, Real GDP GrowtH, %...46
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 46
Table: Emerging Markets, Real GDP Growth, %..47

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