UBS cuts Israel 2012 growth forecast to 3.5%

UBS has cuts its Israel 2012 growth forecast to 3.5% as part of it global growth forecast cut to 3.3% from 3.8%. It left its 2011 growth forecast for Israel unchanged at 4.5%, and reiterated its global growth forecast at 3.5%.

UBS says, "Signs of a slowdown of the Israeli economy have become clearer." Real GDP growth slowed to an annualized 3.3% in the second quarter from 4.7% in the first quarter and 7.4% in the fourth quarter of 2010. It predicts that GDP growth will further slow to 3-3.5% in the third quarter. UBS reiterated its 4.5% growth forecast because it was conservative enough to absorb the slower growth in the second half after the 5.4% growth rate in the first half.

UBS adds, "The slowdown was visible across the board, with household consumption, fixed investment, government spending and exports all softer. Industrial production was even down by an average 3% in the second quarter over the corresponding quarter. Our Israel Lead Economic Indicator (LEI) - which tends to lead economic activity by 2-3 months - suggests that a quick rebound is unlikely."

UBS concludes, "However, given the weaker outlook for the global economy, we cut our 2012 GDP forecast to 3.5% from 4.0% (consensus 4.2%). The softer growth outlook also means that our forecast for Bank of Israel policy rates to rise from the current 3.25% to 3.75% by end-2011 and to 4.5% next year now appears to be exposed to downside risk."

Published by Globes [online], Israel business news - www.globes-online.com - on September 1, 2011