Merrill Lynch has cut its 2009 growth forecast for Israel from zero to minus 0.7%. The outlook appears in an update on emerging markets. It kept its 2010 growth forecast for Israel unchanged at 1.5%.
Merrill Lynch cited weaker exports as the reason for the lower forecast, on the basis of its revised global forecasts, which now point to a much weaker global trade volume in 2009.
Merrill Lynch revised forecast follows UBS, which last month lowered its 2009 growth forecast for Israel to minus 0.8%.
Merrill Lynch notes, "As a small and open economy where 70% of exports are destined for the US and Europe, Israel is not immune to the unfolding global recession." It adds, "With exports to the US accounting for almost 17% of Israeli GDP, GDP growth is likely to contract in 2009 with a modest recovery in the second half of the year. To counteract the deterioration in the growth outlook, the budget deficit will widen to 5% of GDP."
Merrill Lynch predicts that Israel's inflation will reach 1% in 2009, and with inflation no longer a concern, the Bank of Israel will remain firmly focused on growth, and that it will cut the interest rate further to 0.25%. Despite Israel's strong invisibles income, the current account will fall into deficit as exports fall faster than imports, and the debt to GDP ratio will rise to 81%.
Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2009
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