Country Report Israel January 2009

Outlook for 2009-10

• The political outlook will remain uncertain with an early general election scheduled for February 10th.
• The opposition Likud party currently looks the most likely to emerge as the biggest party after the election, with Kadima close behind, although a unity government may be formed including the main parties.
• The military operation in Gaza is likely to conclude with a truce, but with Palestinian factions divided and Israel's political landscape fragmented, there is unlikely to be substantive progress in Israeli-Palestinian peacemaking.
• Israel is unlikely to attack Iran's nuclear installations unless it feels sure that weaponisation is imminent and that it can look to the US for support.
• Owing to higher spending stemming from the Gaza conflict and the likely stimulus measures, combined with weaker revenue as the economy slows, the fiscal deficit will widen sharply in 2009, before stabilising in 2010.
• The Economist Intelligence Unit has revised down its forecasts for OECD growth. The downturn will hurt demand for Israel's exports. We now expect real GDP growth in Israel to reach just 0.9% in 2009 and to rise to 2.7% in 2010.
• With the economy expected to slow and other sources of inflationary pressure beginning to diminish, the central bank is likely to maintain a looser stance on monetary policy, but inflation should still decline in 2009-10.

Monthly review

• Israel's military operation in the Gaza Strip, launched on December 27th, shattered a pre-election diplomatic lull and ushered in a period of international tension and domestic turmoil.
• Both Israel and Hamas have so far rejected a UN Security Council resolution on the conflict and Egyptian and French efforts aimed at reaching a ceasefire.
• The military operation has boosted the electoral prospects of the Labour leader and defence minister, Ehud Barak, but his party still trails the ruling Kadima and opposition Likud parties in public opinion polls.
• The Gaza military operation and the rapidly rising bill for compensation to businesses and households in the area around Gaza have obliged the Ministry of Finance to allocate significant emergency budgetary funds.
• The Bank of Israel (the central bank) has made further interest rate cuts, bringing the policy rate down to a new record low of 1.75% from January.
• Initial estimates from the Central Bureau of Statistics indicate that real GDP expanded by 4.1% in 2008, with the rate of growth slowing sharply in the latter part of the year.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60;65
NAICS Code: 22;52;53

This report covers the following industry codes:
SIC Code: 49;60;65
NAICS Code: 22;52;53