Country Report Israel November 2009

Summary

The political outlook will remain uncertain, given the fragmented nature of the predominantly right-wing government headed by Binyamin Netanyahu, but, despite some defections, the government is unlikely to be unseated.
There is unlikely to be substantive progress on Israeli-Palestinian peacemaking despite continued US efforts to bring the two sides to the negotiating table.
The government's budget for 2009-10 is expansionary. Although revenue is stabilising, it will be weak, pushing up the fiscal deficit sharply, albeit to below the 6% of GDP target.
Although the Bank of Israel (the central bank) has begun to raise its policy interest rate, it will move slowly, and real rates will remain negative well into 2010, only approaching historical norms in 2011.
Having stagnated in 2009, the Israeli economy will post stronger but still modest economic growth rates in 2010-11, averaging just over 2.5% a year.
Despite the weakness of the economy, price pressures remain in some sectors and VAT and other levy increases have also added to inflation. However, inflation will stay below the upper threshold of the 1-3% inflation in 2010-11.
The current account should remain comfortably in surplus in 2010-11 despite a widening trade deficit from 2010.

Mr Netanyahu has succeeded in navigating his six-party coalition government through the challenges of the peace process and difficult parliamentary legislation during his government's first six months in office.
The publication of the UN's Goldstone report on the Gaza conflict has stirred debate in Israel, with some politicians calling for a domestic investigation to stave off further international action on the issue.
The rise in the price of family apartments, especially around Tel Aviv, has come increasingly to public attention. Politicians have responded with plans to increase supply by freeing up state land for development.
The Bank of Israel's continuing efforts to stem the rise in the New Israeli shekel's value have begun to bear fruit; the Israeli currency's traded-weighted index has largely stabilised in recent weeks.
Inflation has begun to moderate, with the consumer price index falling by 0.3% in September, after several months of strong rises
The fiscal situation has begun to stabilise in the past quarter. Revenue levels have increased month on month in July-September, although they are still lower than in the same period of 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 65
NAICS Code: 53