Israel's economy is set to recover from a shallow recession, the shekel will appreciate against the dollar during 2010, and GDP growth in 2011 will return to the level achieved before the economic crisis, says JPMorgan Chase in a review of the Israeli economy.
JPMorgan believes that the Bank of Israel will step up the pace of interest rate hikes over the coming months in order to rein in inflation, after raising the interest rate twice since August. Last month's rate hike was aimed at suppressing the rise in 12-month inflation expectations.
JPMorgan says, "We expect inflation to fluctuate above 3% during 2010, likely peaking above 4% during the first half of 2010." The Bank of Israel will respond by raising the interest rate, and JPMorgan predicts, "Our target for the base rate at the end of 2010 is 4%."
JPMorgan's interest rate prediction is 100 basis points higher than the market consensus. The investment bank therefore also predicts that the shekel will strengthen against the dollar, saying, "We recommend short the shekel-dollar exchange rate for 2010," and predict that the shekel-dollar exchange rate will fall to NIS 3.55/$ by the end of 2010.
JPMorgan predicts no GDP growth for Israel this year, the same as the Bank of Israel's forecast, but believes that growth will pick up. JPMorgan believes that GDP growth will reach 3% in 2010 and 4.5% in 2011. It also predicts 3.2% growth in private consumption in 2011, 63% jump in exports, a 70% increase in imports, and a deficit of 3.5% of GDP.
The Melnick Index rose by 0.8% in November 2009, reflecting Israel's economic recovery. Prof Rafi Melnick said, "The positive economic U-turn that occurred in the second quarter has strengthened."
Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2009
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