from the October 2009 issue

Signs of economic improvement

Israel's GDP will contract by 0.1% in 2009, but will grow by 2.4% in 2010, says the International Monetary Fund in its World Economic Outlook Update, published at the end of Sepotember, to mark the IMF-World Bank Annual Meeting in Istanbul.

In late August, the Bank of Israel revised its growth forecast upwards from minus 1.5% to zero in 2009, and from 1% to 2.5% growth in 2010.

However, in an international comparison, Israel's growth forecast stands out. The IMF's forecast of a 0.1% GDP contraction is better than its forecasts for all other developed economies, including the US (-2.7%); Euro Bloc (-4.2%); Germany (-5.3%); Japan (-5.4%); South Korea (-1%), and Singapore (-3.3%). The IMF predicts an overall contraction of 3.4% for developed economies as a whole in 2009.

The IMF's growth forecast of 2.4% for Israel in 2010 is also among the fastest rates projected for next year among developed countries. Only five countries are predicted to do better: Singapore 4.1%; Slovakia and Taiwan 3.7% each; South Korea 3.6%; and Hong Kong 3.5%. The IMF predicts that the US economy will grow by 1.5% next year, the Euro Bloc will grow by 0.3%, and Japan by 1.7%. The IMF also predicts that Israel's inflation will be 3.6% in 2009 and 2% in 2010. The Bank of Israel says that 12-month inflation rate through September 2010 will be 2.3%. The IMF predicts that Israel's unemployment rate will be 8.2% this year, well above the 2008 rate of 6.2%. It also expects the unemployment rate to rise further, to 8.6%, in 2010. This forecast is similar to the projection by Harel Finance chief economist Michael Sarel, formerly the chief economist at the Ministry of Finance. He expects an unemployment rate of 8.1% this year and 8.5% next year.

Ministry of Finance representative in New York Zvi Halamish stated that the IMF forecast strengthens the optimistic responses we're getting from investors about the Israeli economy. Although exports are not reaching the level from before the crisis, they're not far off."

Perhaps most encouragement was the end of employee layoffs that had plagued the economy all of last year. Many of the unemployed came from the franks of high-tech companies, who were the first to feel the global economic pinch.

The Tel-Aviv Stock Exchange sensing a change in the direction of the economy, by the end of August had risen by 61% since the beginning of the year. By the end of September it had passed the 1,000 mark, the equivalent of 10,000 on the Dow Jones Index.

While the building industry is still in the doldrums real estate prices have risen sharply, especially in the Tel-Aviv area. A recent survey found that housing prices in Israel were 8.4% higher in the second quarter of 2009 than in the corresponding quarter of 2008 - the highest growth in any market in the survey.

Reprinted from the Israel High-Tech & Investment Report October 2009

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