Israel Business Forecast Report Q3 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	59
ISBN Number	1745-0608
Product Code	BMI02147

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Summary

Foreign relations and the Palestinian question are, as ever, high on the agenda in Israel. While foreign allies are pushing the Netanyahu administration towards a two-state solution, public opinion remains highly sceptical, as do many in the government coalition. On the economic front, the government faces the challenge of balancing military spending with a rising social welfare bill, at a time of recession and rising unemployment (not to mention a large and unwieldy coalition with diverse spending priorities).

The enthusiasm with which the Obama administration is pursuing a Middle East peace deal has led to pressure on Israeli Prime Minister Binyamin Netanyahu to agree to the principle of a two-state solution and put a stop to Israeli settlement building in the West Bank. He did the former in June, during a major foreign policy speech, in which he accepted the idea of a demilitarised Palestinian state. However, we do not expect Israel to yield on the settlement question, at least not while a final peace deal is still a distant prospect. With Netanyahu's speech having had little positive impact on Palestinian opinion, we do not anticipate any significant progress over the coming year.

Israel is still in recession, and although there are some signals that could portend the start of a recovery, we still see the economy contracting by 1.9% in real terms in 2009. A slump in private consumption - the largest component of real GDP by expenditure - has been the main driver of the recession, although investment and exports are also down sharply. Government spending will increase significantly this year, resulting in a fiscal deficit in excess of 6% of GDP. On a slightly more positive note, a contraction in demand for imports will keep Israel's current account in surplus, even if it is symptomatic of a weaker consumer environment.

Israel's tense relations with its Arab neighbours continue to impact its business environment. The Palestinian Authority (PA) is reportedly putting pressure on Saudi Arabia to cancel the award of a major railway building contract to a French firm, due to its involvement in a controversial rail project linking Israel with settlements in East Jerusalem and the West Bank. Although there is no indication that Saudi Arabia will acquiesce, we reiterate our view that an improvement in regional ties, through a peace deal encompassing the PA, Lebanon and Syria, would be a positive development for Israel's business environment, opening up new trade opportunities.

Content

Executive Summary
Political and Economic Challenges Abound
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Political Outlook
- Two-State Solution: Rhetoric Fails to Move Debate Forward
- Binyamin Netanyahu's Acceptance of A Two-State Solution to The Israeli-Palestinian Conflict Is Notable, but We Believe That A Final Peace Agreement Remains A Far-off Prospect.
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Private Consumption Key to Recession and Recovery
- While The Israeli Economy Is Forecast to Recover Fairly Quickly from The Current Recession, We Still See A Few Hard Quarters Ahead.
- Balance of Payments
- Current Account Surplus Still on Track
- The Global Recession Continues to Weigh on Israeli Exports, with Negative Implications for Employment and Investment, but We Are Forecasting Imports to Decline Slightly Faster during 2009.
- Fiscal Policy
- Record Fiscal Deficit Looming
- Israel Is Facing Several Years of Large Budget Deficits, Driven by A Combination of Lower Revenues and Higher Spending.
Chapter 3: 10-Year Forecast
- The Israeli Economy to 2018
- Long-Term Outlook Slow but Steady
- We Are Forecasting Steady, If Unspectacular Growth for The Increasingly Developed Israeli Economy over The Long Term.
Chapter 4: Special Report
- The Outlook for Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Bmi Trade Ratings
- Operational Risk
Chapter 6: Key Sectors
- Autos
- Executive Summary
- Bmi Forecasts That Car Sales in Israel Will Fall This Year Due to The Global Downturn. Preliminary Data Show That Car Imports into The Country Fell by 40% over January-February Compared with The Same Period of The Previous Year. This Is in Line with A 38% Y-O-Y Fall in Vehicle Sales in November 2008, When Only 10,148 New Cars Were Sold Compared with 16,439 in November 2007.
- Freight Transport
- Executive Summary
- Israel Scores above The Mea Average for Infrastructure Growth, and Significantly, Ranks Just below Saudi Arabia, The UAE and Kuwait
- - The Regional Countries That Have Had The Largest Net Windfall Oil Earnings to Invest in Their Transport Sectors. There Is A Legacy of under-Investment in The Rail System, Which Is Now Being Addressed. Bmi Expects Some Improvement under This Heading in Coming Quarters.
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Political Overview
- Table: Economic Activity
- Table: Balance of Payments
- Table: Fiscal Policy
- Table: Israel Lon G-Term Macroeconomic Forecasts
- Table: Loan-to-Deposit Ratios, Selected States
- Table: Loan Growth (% Chg Y-O-Y), Selected States
- Table: Commercial Banking Business Environment Ratings, Selected States
- Table: Bmi Business and Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: Labour Force Quality
- Table: Middle East & Africa Annual Fdi Inflow S
- Table: Top Export Destinations
- Table: Israel Automot Ive Industry Historical Data & Forecasts
- Table: Israel's Freight Transport Industry, 2006-2013
- Table: Global Assumptions
- Table: Global & Regional Real Gdp Growth
- Table: Commodities