Discount Bank today published an optimistic forecast for the Israeli economy, predicting faster growth for both this year and next than the Bank of Israel. Discount Bank predicts that Israel's GDP will grow by 0.5% in 2009 and 3% in 2010; the Bank of Israel predicts zero growth this year and 2.5% growth next year.
Discount Bank chief economist Nira Shamir says, "Since October 2008, we've seen a sharp and steady drop in the liquidity risk in the banking system, reflected in the drop in the Ted Spread (the difference between the yield on three-month US T-Bills and the three-month LIBOR) from 4.5% to 0.2%. This level is lower than the level prevalent after the outbreak of the financial crisis in October, and even lower than the level on the eve of the sub-prime crisis in late July 2007."
Shamir has a reason to point to the Ted Spread: it is a favorite indicator used by former Federal Reserve Board Chairman Alan Greenspan to examine the credit crunch.
Discount Bank predicts 3.8% inflation in 2009 and 2.6% in 2010, and that the Bank of Israel will raise the interest rate from the current 0.75% to 3% by the end of next year. It also predicts that the shekel will continue to strengthen, with the shekel-dollar exchange rate falling to NIS 3.60/$ during 2010, while the yield on ten-year government notes will rise to 5.7% from the current 4.96%.
After two consecutive quarters of economic contraction, Israel's GDP grew by an annualized 1% in the second quarter, marking the technical emergence from recession. On the basis of the latest economic indicators, showing export and private consumption growth, market sources predict that GDP growth will be higher than an annualized 1% in the third quarter.
Shamir says that economic recovery is dependent on export growth, which will be driven by a recovery in global trade. Exports are helped by Intel Corporation's (Nasdaq: INTC) new Fab 28 in Kiryat Gat. Additional factors are the rally on the Tel Aviv Stock Exchange (TASE) and in real estate, which she says "have increased the wealth of Israeli consumers" and improved individuals and manufacturers' feelings about their economic future.
Published by Globes [online], Israel business news - www.globes-online.com - on October 21, 2009
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