Business activity expanded in the third quarter of 2011, though there was marked moderation in the pace of growth.
The slowdown in the pace of growth of activity was centered on the manufacturing, business services, and transport and communications industries.
The moderation in the manufacturing sector was reflected primarily in exports, but expectations for the coming quarter show that the moderation in activity will include sales to the domestic market as well. The moderation was prominent primarily among small companies in the sector.
Companies expect that activity will continue to be restrained next quarter as well. For the first time since the second quarter of 2009, the leading index crossed the 0.5 line which reflects a high probability of another slowdown in activity.
The average of inflation expectations among companies which responded to the survey returned to within the range defined as price stability, and stood at 2.6 percent.
Reports from all the companies and businesses participating in the survey show that in the third quarter of 2011, business activity grew at a more moderate pace than in the second quarter. The weighted net balance of the business sector was positive, but more moderate. Based on responses to the survey, the moderation in third quarter activity was focused on manufacturing exports and sales of services to abroad. Expectations for the next quarter indicate that the domestic component as well of the manufacturing and services industries will slow down. The leading index of the survey forecasts, for the first time since the second quarter of 2009, a slowdown in the pace of growth for the following quarter.
Activity in the manufacturing sector grew at a relatively moderate pace compared with the previous quarter, primarily due to a standstill in export sales. The survey data indicate that the moderation in the net balance of output compared with the second quarter was most pronounced among smaller firms, though expectations for the following quarter are for a slowdown in output for both large and small companies. The companies report that next quarter the slowdown in activity will be reflected in domestic demand and not just in foreign sales volume.
Activity in the commerce sector increased more moderately than in the previous quarter. Additionally, in the current quarter as well the number of workers in the sector did not increase. Companies expect that in the fourth quarter of 2011 there will be a further increase in sales.
Business services companies report a moderate increase in activity, after larger increases in previous quarters. The slowdown in increase in activity focused this quarter on sales of services in Israel, together with a continued slowdown in sales of services abroad which began in the beginning of the year. Expectations are for continued moderate activities next quarter.
The companies in the hotels industry reported a sharp decrease in activity in the third quarter compared with the high levels recorded in the corresponding quarter of 2010. This decline in activity reflects moderation in the growth of tourist volume from Israel as well as from abroad.
Transport and communications companies reported that in the third quarter activity did not increase, after rising in previous quarters. The restrained activity was reflected especially in sales of services to Israelis, and expectations indicate that the moderation in activity will continued next quarter.
Construction company reports show that in the third quarter volume of activity increased slightly, due to an increase in construction volume of buildings and infrastructure. The finding which continues to stand out in the survey figures is the significant increase in prices of output of the sector, even as, for the first time in quite a while, there was a slowdown in the pace of increase. There was also a marked increase in the severity of the financing difficulty constraint.
Inflation expectations for the coming twelve months returned to within the 1-3 percent per year price stability target range, and the average is currently 2.6 percent, compared with 3.1 percent in the previous quarter. The companies expect that the shekel-dollar exchange rate in twelve months' time will be NIS 3.80/$, compared with NIS 3.60/$ forecast in the previous survey.