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Israel Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views Political risks have increased sharply, with more than 100 Israeli and Palestinian deaths recorded between October 2015 and January 2016 and no sign of appeasement in tensions. Prime Minister Benjamin Netanyahu controls a coalition with a majority of just one seat in the Knesset and it is likely that it will not be able to see out its four-year term. Economic growth will accelerate over the coming quarters, as government spending increases and exports and private consumption pick up following one-off slumps.

Table Of Contents

Israel Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Gas Framework Approval No Game Changer8
The approval by Israeli Prime Minister Benjamin Netanyahu of a natural gas framework will boost FDI in the country over the coming
quarters, but will fail to produce a rapid increase in gas exports, given the many headwinds faced by the developers of the Leviathan
gas field In addition, Netanyahu's move is likely to create more domestic political instability, given the controversial nature of the gas
framework, without triggering extensive regional cooperation in the Levant
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
No Significant Risk From Loosening Of Fiscal Discipline11
Israel's public deficit will increase over 2016 as the government engages in expansionary fiscal policy following a year of capped
expenditure in the absence of a budget Adopted by the Knesset in November 2015, the 2016 budget marks a definite loosening in fiscal
discipline, but does not alter our positive outlook for the country's sovereign risk profile
Structural Fiscal Position 12
TABLE: BREAKDOWN OF PUBLIC REVENUES and EXPENDITURE, % OF TOTAL 13
External Trade And Investment Outlook 14
Further Improvements Masking Export Weakness14
Israel's current account surplus will increase only moderately over 2016, with additional weakness in global oil prices driving further
external improvements as export growth remains sluggish As a result, Israel's foreign reserves will continue to increase, reinforcing the
Bank of Israel's capacity to fight off appreciatory pressures on the shekel
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: BREAKDOWN OF IMPORTS IN 2014 15
TABLE: BREAKDOWN OF EXPORTS IN 2014 16
Monetary Policy 17
Moderate Tightening Not Sooner Than Late 201617
The BOI will maintain its accommodative policy over the coming quarters given the risks posed to the shekel, economic activity and
inflation With the latter reaching the central bank's target of 1-3% annual inflation in late 2016, and with economic growth accelerating
over the coming quarters, the BOI will embark on very moderate monetary tightening from Q416
Monetary Policy Framework 18
Chapter 2: 10-Year Forecast 21
The Israeli Economy To 2025 21
Encouraging Growth Prospects Over The Coming Decade21
Israel's economy will undergo a steady expansion over the coming decade, driven by elevated export and gross fixed capital formation
growth Political risks will remain significant and the key downside risk to growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS 21
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index 25
Domestic Politics 26
No End In Sight For Israeli Isolation 26
Israel's isolation on the international stage will remain elevated over the coming quarters, as the government's policy towards
Palestinian issues continues to stand at odds with the country's main allies' strategy This will be reinforced by the limited potential for a
policy shift in Israel, given the strong ideological divide fragmenting the ruling coalition on the Palestinian issue
TABLE: POLITICAL OVERVIEW 26
Long-Term Political Outlook 28
Long-Lasting Peace With The Palestinians Unlikely28
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 That said, it will withstand these challenges due to elevated
levels of internal cohesion and the strength of its security forces
Chapter 4: Operational Risk 33
SWOT Analysis 33
Operational Risk Index 33
Operational Risk 34
TABLE: OPERATIONAL RISK 34
Trade Procedures And Governance 35
TABLE: MENA - TRADE PROCEDURES AND GOVERNANCE RISK 35
TABLE: EXPORT AND IMPORT DOCUMENTS 35
TABLE: TRADE PROCEDURES BREAKDOWN 35
Vulnerability To Crime 36
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook 41
Tail Risks Mounting Amid Sub-Par Growth41
TABLE: GLOBAL ASSUMPTIONS 41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 43
TABLE: MACROECONOMIC DATA and FORECASTS 45

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