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Bank of Israel raises GDP growth forecast to 5.2%

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Monday, June 13th, 2011

As reported in Globes:

The Bank of Israel today raised its 2011 GDP and lowered its unemployment rate forecasts for Israel. It raised its GDP growth forecast to 5.2% from 4.5%, and it lowered its unemployment rate forecast to 5.8% – an all-time low.

The Bank of Israel’s growth forecast is lower than the OECD forecast of 5.4%, announced earlier this week.

The Bank of Israel also predicts 4.2% GDP growth in 2012 and no change in the unemployment rate.

The Bank of Israel said, “The rapid growth of GDP and use of resources in the first quarter, and in particular the surge in exports and fixed investment, resulted in an upward revision of most items. Despite the rapid increase in exports, the surplus in the current account of the balance of payments is expected to be significantly smaller than in the previous forecast, because of a faster increase in imports and a more severe deterioration in the terms of trade. The quarterly rates of growth are expected to slow a little in the course of the year as the economy converges to a full employment situation.”

As for 2012, it said, “Exports are expected to continue increasing, at a rate slightly below that of world trade, due to both external forces – the deterioration in the terms of trade – and the level of the real exchange rate. The steep increase in capital stock, the result of the expansion of investment in 2011; and the continued rise in the rate of participation in the labor force to 58%, are expected to contribute to a growth rate in 2012 in excess of the potential rate, despite the fact that the economy is in a full employment environment.”

The Bank of Israel predicts 4% growth in private consumption in both 2011 and 2012, export growth (excluding diamonds) of 6.3% this year and 6.2% next year, import growth (excluding defense and diamonds) of 11.5% and 6.7%, respectively, and investment in fixed assets growth of 15.4% and 6.8%.

The Bank of Israel warns that the forecast assumes stability in Israel’s geopolitical situation and continued recovery in the global economy without serious fiscal or financial crises developing. In light of the risks in these fields, the balance of risks in the forecast tends to be on the downside.