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Israel raises growth forecast to 5.2%
Central Bank's optimistic forecast for Israeli economy based on two assumptions: Political stability in Middle East, ongoing global recovery. Unemployment rate expected to drop to 5.8%
The Bank of Israel
is raising its growth forecast for the Israeli economy, following a 4.7% growth in the first quarter of 2011.
The central bank on Wednesday updated its macroeconomic forecast for 2011-2012, based on the Israeli economy's achievements in the first quarter of the year.
Predictions
Israel's economy expected to grow 5.4% in 2011 though recent political developments pose risk
According to the forecast, the Israeli economy is expected to grow by 5.2% in 2011 and the average unemployment rate will drop to 5.8%. The expected growth in 2012, according to the Bank of Israel, will be 4.2%.
In March, the Bank of Israel predicted that Israeli economy would grow by only 4.5% in 2011, and by 4% in 2012. In the same annual report, the bank's economists said the average unemployment rate in 2011 would total 6.1%.
It turns out that the bank's forecast writers were pleasantly surprised by the Israeli economy's performance. The high growth rate of GDP and use of resources in the first quarter of the year, and particularly the rapid growth in exports and fixed investments, led to an upward revision of most clauses.
High growth was recorded in exports as well, but because the increase in imports was even higher, and because the shekel's appreciation against the euro and US dollar affected the exports' profitability, the surplus in the current account of the balance of payments is smaller.
The bank noted that the sharp increase in capital stock, as a result of the rise in investments in 2011 and the ongoing growth in labor force participation to 58%, is expected to contribute to a higher growth rate than the potential rate although the economy is in a full employment environment.
The bank's economists stressed that the forecast is based on two assumptions: Political stability in the Middle East and an ongoing recovery of the global economy without a wide-scale economic crisis.
If these two assumptions fail to materialize, the Israeli economy will likely not meet this optimistic forecast.
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